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by Paul and Sarah Edwards 
and Peter Economy 


Wiley Publishing, Inc. 



2nd edition 



by Paul and Sarah Edwards 
and Peter Economy 


Wiley Publishing, Inc. 

Home-Based Business For Dummies®, 2nd Edition 

Published by 

Wiley Publishing, Inc. 

1 1 1 River St. 

Hoboken, NJ 07030-5774 

www.wi 1 

Copyright © 2005 by Wiley Publishing, Inc., Indianapolis, Indiana 

Published simultaneously in Canada 

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About the Authors 

Paul and Sarah Edwards's self-employment and career books 
have sold over a million and a half copies. They write monthly 
columns for Entrepreneur and The Costco Connection. They 
hosted The Working From Home Show on HGTV, have been 
regular commentators on CNBC, and appear frequently on 
radio and TV shows across the country. Since 1988, they 
have produced and co-hosted an hour-long show Working 
From Home, which currently airs on The Entrepreneur 
Radio Network at www.wsradi o. com /entrepreneur^ 
homebasedbi z/. Occasionally, their show, broadcast from 
their California home, is enriched by the barks of Billy, their 
toy Manchester Terrier. 

Paul and Sarah provide a wealth of ongoing information, 
resources, and support, including updates, marketing tips, 
and excerpts from their sixteen books on self-employment at 

www.worki ngfrom home. com. 

Peter Economy, who lives in La Jolla, CA, is a home-based 
business author and the coauthor of Why Aren 't You Your Own 
Boss? with Paul and Sarah Edwards, Managing For Dummies and 
Consulting For Dummies with Bob Nelson, and Writing Children's 
Books For Dummies with Lisa Rojany Buccieri. Peter is also 
Associate Editor for the award-winning magazine Leader to 

Peter combines his writing experience with more than 15 years 
of hands-on management experience. He received his bachelor's 
degree in economics from Stanford University and is pursuing 
his MBA at the Edinburgh Business School. Peter invites you 
to visit his Web site (www. petereconomy .com). 


To the millions of home-based businesspeople whose entrepreneurial spirit 
shines as a beacon, inspiring those around you and lighting a path to the suc- 
cess you so richly deserve. 

Author's Acknowledgments 

We give our sincere thanks and appreciation to our original publishing team: 
Kathy Welton, Mark Butler, and Tere Drenth. For the current edition, we thank 
Stacy Kennedy, Corbin Collins, and Beverley Williams. 

Paul and Sarah also extend their thanks to Peter Economy for his dedication 
to this project. 

Peter thanks Paul and Sarah Edwards for the opportunity to work with them 
on this dynamic topic, and for sharing their extensive experience and wisdom 
with him. Together, we rediscovered the joy of doing the work that we truly 
love and the power of teamwork. 

Publisher's Acknowledgments 

We're proud of this book; please send us your comments through our Dummies online registration 
form located at www. dummies .com/register/. 

Some of the people who helped bring this book to market include the following: 

Acquisitions, Editorial, and 
Media Development 

Project Editor: Corbin Collins 

Acquisitions Editor: Stacy Kennedy 

Technical Editor: Beverley Williams 

Editorial Manager: Michelle Hacker 

Editorial Supervisor: Carmen Krikorian 

Editorial Assistants: Courtney Allen, 
Nadine Bell 

Cover Photos: Rob Melnychuk/Getty Images/ 

Cartoons: Rich Tennant, www. the5thwave . com 


Project Coordinator: Maridee Ennis 

Layout and Graphics: Andrea Dahl, 
Lauren Goddard, Joyce Haughey 
Stephanie D. Jumper, Barry Offringa 
Heather Ryan, Julie Trippetti 

Proofreaders: Leeann Harney Jessica Kramer, 
Joe Niesen, TECHBOOKS Production 

Indexer: TECHBOOKS Production Services 

Publishing and Editorial for Consumer Dummies 

Diane Graves Steele, Vice President and Publisher, Consumer Dummies 

Joyce Pepple, Acquisitions Director, Consumer Dummies 

Kristin A. Cocks, Product Development Director, Consumer Dummies 

Michael Spring, Vice President and Publisher, Travel 

Brice Gosnell, Associate Publisher, Travel 

Kelly Regan, Editorial Director, Travel 
Publishing for Technology Dummies 

Andy Cummings, Vice President and Publisher, Dummies Technology/General User 
Composition Services 

Gerry Fahey, Vice President of Production Services 

Debbie Stailey, Director of Composition Services 

Contents at a Glance 

Introduction 7 

Parti: Beginning at the Beginning 5 

Chapter 1: What You Need to Know about Home-Based Businesses 7 

Chapter 2: Mirror, Mirror on the Wall, What's the Best Business of All? 21 

Chapter 3: Hot Opportunities Now and for the Future 45 

Chapter 4: Marketing 101: Getting Customers 65 

Chapter 5: Making the Web Work for You 87 

Part 11: Managing \l our Money 105 

Chapter 6: Making the Transition to Working for Yourself 107 

Chapter 7: Keeping Track of Your Money 131 

Chapter 8: The Price Is Right: Deciding How Much to Charge 157 

Chapter 9: Getting Health Insurance and Planning for Your Retirement 175 

Chapter 10: Getting a Grip on Taxes and Deductions 191 

Part 111: Avoiding Problems 213 

Chapter 11: Legal Do's and Don'ts 215 

Chapter 12: Using Outside Resources and Experts 235 

Chapter 13: Eluding Scams, Rip-Offs, and Other Headaches 251 

Part IV: Making It Work: Moving Ahead 261 

Chapter 14: Staying on Track with a Serious Business Attitude 263 

Chapter 15: Coexisting with Kids, Relatives, Neighbors, and Pets 281 

Chapter 16: Don't Just Stand There, Grow 295 

Part V: The Part of Tens 309 

Chapter 17: Ten Tips to Succeed in Your Home-Based Business 311 

Chapter 18: Ten Things to Avoid 319 

Chapter 19: Ten Myths about Working from Home 325 

Chapter 20: Ten Things to Do if Times Get Tough 333 

Index 339 

Table of Contents 

Introduction / 

About This Book 1 

How This Book Is Organized 2 

Part I: Beginning at the Beginning 2 

Part II: Managing Your Money 2 

Part III: Avoiding Problems 3 

Part IV: Making It Work: Moving Ahead 3 

Part V: The Part of Tens 3 

Icons Used in This Book 3 

Where to Go from Here 4 

Parti: Beginning at the Beginning 5 

Chapter 1: What You Need to Know 

about Home-Based Business 7 

Home-Based Business Defined 8 

The Basics of Home-Based Business 9 

What kind of business will it be? 9 

Managing your money 11 

Avoiding problems 11 

Moving ahead 12 

The Good News and the Bad 14 

Reasons to start a home-based business 14 

The pitfalls of home-based businesses 16 

Understanding when you're ready to make the move 16 

Chapter 2: Mirror, Mirror on the Wall, 

What's the Best Business of All? 21 

Starting Something from Scratch 22 

Doing what you have been doing in a job 24 

Doing something new and different 25 

Buying a Business 26 

Home-based franchises 28 

Direct-selling opportunities 34 

Business opportunities 38 

Identifying Which Option Is Best for You 41 

Finding Your Niche by Specializing 42 

JC((/ Home-Based Business For Dummies, 2nd Edition 

Chapter 3: Hot Opportunities Now and for the Future 45 

1. The Maturing Population 45 

Daily needs 46 

Professional services 47 

Special services 47 

2. Great Migration South and to Smaller Places 48 

3. Universal Connectivity: the Electronic Environment 49 

4. Economic Globalization 50 

5. Increasing Numbers of Self-Employed 52 

6. Living off the Grid 53 

7. Rising Physical and Property Security Needs 54 

8. Education for Youth and Adults 55 

9. Health Care: Up in Demand and Cost 56 

10. Luxuries as Necessities 59 

Where You Can Learn about More Home Businesses 61 

Chapter 4: Marketing 101: Getting Customers 65 

Identifying Your Best Customers 65 

Tapping Into Your Customers' Needs 67 

The WPWPF principle 68 

Carving out a niche 70 

Marketing: Different Roads to Meeting Your Goals 71 

Word of mouth 73 

Referrals 74 

Public relations 76 

Direct marketing 79 

Advertising 80 

Web sites and e-commerce 81 

Developing a Marketing Plan — Now! 83 

Part 1: Overview 84 

Part 2: Marketing objectives 84 

Part 3: Situation analysis 84 

Part 4: Marketing strategies 85 

Part 5: Financials 85 

Chapter 5: Making the Web Work for You 87 

Bidding for Work 87 

Sites that specialize in putting buyers and sellers together 88 

Tips for winning bids 89 

Keys to keeping clients and building your business with them 90 

Getting Listed in Directories 90 

Online business directories 91 

Association memberships 91 

Going local: SmartPage listings and 
search-engine local listings 92 

Table of Contents %{} 

Networking the Internet Way 93 

Online forums 93 

Social networking sites 94 

Online etiquette for making winning relationships 94 

Using Your Web Site to Attract Customers and Clients 96 

What it takes to get traffic 96 

Making it easy for visitors to become customers 98 

Building and Maintaining Your Web Site 99 

Hire someone to create and maintain your Web site 99 

Create a Web site yourself 100 

Skip the Web site and create an e-commerce site 101 

Regardless of who creates it, make your site good 102 

Part 11: Managing \lour Money 105 

Chapter 6: Making the Transition to Working for Yourself 107 

Transitioning into Your Home-Based Business 108 

Five steps to take before leaving your job 109 

Overview of starting a home-based business Ill 

Six Ways to Get the Cash Flowing 120 

Beginning part-time with your new business 120 

Working part-time at your old job 120 

Turning your employer into your first client 121 

Taking business with you (ethically!) 121 

Financing your business with startup funds 121 

Piggybacking with your spouse or significant other 123 

Sixteen Sources of Startup Funds 123 

Putting Together a Business Plan 126 

Knowing When to Move On 128 

Chapter 7: Keeping Track of Your Money 131 

Organizing Your Finances 131 

Setting Up a Business Account 133 

Accepting Credit Card Sales 134 

Choosing the Best Bookkeeping System for Your Business 138 

Check registers and bank statements 139 

Financial statements 140 

Key financial ratios 143 

Finding Happiness in Positive Cash Flow 144 

Treating cash as king! 145 

Finding seven ways to kick-start your cash flow 147 

Understanding collections 148 

Getting a Loan 151 

Discovering different kinds of credit 151 

Getting the loan you want 153 

Fixing your bad credit history 154 

)C{Ji Home-Based Business For Dummies, 2nd Edition 

Chapter 8: The Price Is Right: Deciding How Much to Charge 157 

Figuring Out What Your Prices Must Cover 158 

Salary 160 

Overhead 160 

Direct costs 161 

Profit 162 

Sizing Up Your Potential Customers and What They Will Pay 163 

Researching Your Competition 164 

Pricing Strategies That Deliver Sales 166 

Creating value for your clients 166 

Setting your prices: five approaches 167 

Changing your prices 170 

Deciding whether to discount 173 

Chapter 9: Getting Health Insurance and 

Planning for Your Retirement 175 

Providing Your Own Benefits 176 

Choosing Your Health Care Coverage 177 

The spectrum of health coverage 178 

Fee-for-service and indemnity health care plans 179 

Managed care plans 180 

Other health care coverage 184 

Considering the Need for Other Benefits 186 

Income protection 186 

Life insurance 187 

Retirement and savings plans 187 

Time off 188 

Child care 189 

Chapter 10: Getting a Grip on Taxes and Deductions 191 

Understanding Which Taxes to Pay — and When to Pay Them 192 

Who has to pay? 193 

When do you have to pay? 198 

How much do you have to pay? 199 

When is an independent contractor not 

an independent contractor? 201 

Taking a Look at the Home-Office Deduction 205 

Reviewing Other Important Tax Deductions 207 

Discovering Sometimes-Overlooked Ways to Save On Your Taxes 208 

Uncovering the Ins and Outs of Sales Tax 210 

Ta bl e of Contents jClfH 

Part 111: Avoiding Problems 213 

Chapter 11: Legal Do's and Don'ts 215 

Understanding the Forms (Legal Structures) of Businesses 216 

Sole proprietorship 217 

Partnership 218 

Limited liability company 220 

Corporation 220 

Name Registration 222 

Trademarks, Copyrights, and Patents 225 

Trademarks 225 

Copyrights 226 

Patents 227 

Zoning, Licensing, and Permits 228 

Zoning 229 

Licensing and permits 231 

Tax Requirements 232 

Chapter 12: Using Outside Resources and Experts 235 

Establishing Trade Accounts 236 

Using Support Services 237 

Finding Good Lawyers, Accountants, and Other Professionals 240 

Lawyers 241 

Accountants 242 

Bankers 244 

Business consultants 246 

Insurance agents and brokers 248 

Cashing In on Barter 249 

Chapter 13: Eluding Scams, Rip-Offs, and Other Headaches 251 

Sniffing Out the Scams 252 

Job-at-home 253 

Business opportunities 254 

Franchises 255 

Direct-selling, network marketing, multi-level marketing 256 

Places to Check 257 

Finally, Be Wary of 258 

A Final Word 258 

JC(/((( Home-Based Business For Dummies, 2nd Edition 

Part IV: Making It Work: Moving Ahead 261 

Chapter 14: Staying on Track with a Serious 

Business Attitude 263 

It All Begins with a Serious Business Attitude 264 

It's what's inside that counts 264 

What's outside counts, too 266 

Separating Your Work from Your Personal Life 268 

Avoiding Interruptions and Distractions 270 

Dealing with interruptions 270 

Dealing with distractions 271 

The last resort 272 

Routines Rule 274 

An Organized Home Office Is a Happy Home Office 276 

Managing your office 276 

Managing your time 278 

What's a priority and what's not? 279 

Chapter 15: Coexisting with Kids, Relatives, 

Neighbors, and Pets 281 

What to Expect from Your Kids 282 

What to Expect from Relatives, Friends, and Neighbors 285 

What to Expect When Working with Pets 286 

Workaholics, Unite! Qt's Time to Get a Life!) 287 

Teaming Up with a Spouse or Other Loved One 289 

Knowing when to team up 290 

Figuring out how to team up 291 

Building a healthy, long-term relationship 293 

Chapter 16: Don't Just Stand There, Grow 295 

Becoming a Success 296 

Identifying the Upside and Downside of Growth 297 

Understanding why you may want to grow 298 

Recognizing the many different ways to grow 299 

To grow or not to grow 300 

Bringing In Partners 302 

Cashing Out and Other Exit Strategies 304 

Putting a value on your business 306 

Now what? 306 

Table of Contents tfftf 

Part V: The Part of Tens 309 

Chapter 17: Ten Tips to Succeed in Your Home-Based Business . . .311 

Do What You Love 312 

Treat Your Business Like a Business 312 

Become an Expert 313 

Don't Be Shy 313 

Charge What You're Worth 314 

Avoid Unnecessary Expenses 314 

Manage Your Cash Flow 315 

Keep Your Day Job 315 

Build a Solid Customer Base 316 

Ask for Referrals 316 

Chapter 18: Ten Things to Avoid 319 

Don't Turn Your Bedroom into Your Office 319 

Don't Use Your Office as a Family Entertainment Center 320 

Don't Work Morning, Noon, and Night 320 

Don't Allow Paperwork and Office Equipment 

to Take Over Your Home 321 

Don't Let Housework or Hobbies Distract You 

from Getting Your Work Done 321 

Don't Fill Your Cabinets and Refrigerator with Junk Food 322 

Don't Expect Business to Come to You 322 

Don't Expect to Be an Overnight Success 323 

Don't Give In When Someone Tries to Occupy 

Your Precious Working Time 323 

Don't Expect to Work Effectively with Children Underfoot 324 

Chapter 19: Ten Myths about Working from Home 325 

You Have to Be a Salesperson to Be Successful 325 

You Can't Work with Kids at Home 326 

You'll Get Rich Quick 327 

You Can't Make Any Money 327 

Home-Based Businesses Aren't Real Businesses 328 

Home-Based Businesses Are Cheap 328 

There's No Going Back 329 

If You're at Home, You Must Not Be Working 329 

You Can Write Off Everything 330 

You Can Run around in Your Pajamas All Day Long 331 

^^ Home-Based Business For Dummies, 2nd Edition 

Chapter 20: Ten Things to Do if Times Get Tough 333 

Save for a Rainy Day 333 

Manage Your Cash Flow 334 

Keep in Touch with Your Customers 335 

Push Your Clients to Pay Their Bills 335 

Minimize Expenses 336 

Offer a Special Promotion 336 

Subcontract for Others 337 

Volunteer 337 

Moonlight 338 

Refuse to Give Up! 338 

Index 339 


KMyh° doesn't dream of starting one's own business and being one's own 
▼ W boss? Increasingly, this dream is becoming a reality for the millions of 
people who have chosen to start their own businesses at home. And it's not 
just a pie-in-the-sky dream; starting a home-based business is a reality that 
has created wide-open opportunity and success for those who decided to 
take the plunge — just as it can for you. 

Home-Based Business For Dummies, 2nd Edition, presents and explains an 
incredibly wide variety of information — all of it aimed at ensuring your 
home-business success. Whether you need information on choosing the right 
business opportunity, avoiding scams, marketing your business, pricing your 
products and services, keeping accounts and books, understanding legal do's 
and don'ts, or growing your business, you'll find it here. 

This book provides you with the very best ideas, concepts, and tools for 
starting and successfully operating your home business. Apply them, and 
we're convinced that you'll be able to create exactly the kind of business you 
have always dreamed of and find exactly the level of success that you have 
always wanted. 

About This Book 

Home-Based Business For Dummies is full of useful information, tips, and 
checklists for everyone who aspires to start a successful home-based busi- 
ness. Your current level of business experience (or lack thereof) doesn't 
matter. Don't worry about not having years of it under your belt or about not 
knowing the difference between direct selling and a franchise. For a fraction of 
the amount you would pay to get an M.B.A., this book provides you with an 
easily understandable road map to today's most innovative and effective 
home-based business techniques and strategies. 

The information you'll find here is firmly grounded in the real world. This 
book isn't an abstract collection of theoretical mumbo-jumbo that sounds 
good but doesn't work when you put it to the test. Instead, we've culled the 
best information, best strategies, and best techniques — the exact same ones 
that are taught in today's top business schools. This book is a toolbox full of 
solutions to your every question and problem. 

Home-Based Business For Dummies, 2nd Edition 

This book is also fun — it reflects our strong belief and experience that run- 
ning a business doesn't have to be a bore. We even help you maintain a sense 
of humor in the face of the challenges that all home-based businesspeople 
face from time to time, because we've been there, done that! 

And one more thing: The Internet has forever changed the world of business, 
and that includes home-based businesses. This book contains the latest infor- 
mation on e-commerce and on starting and operating a successful business 
on the Internet. It's also chock full of our own personal Internet bookmarks 
for the best home-business resources the Web has to offer. 

Hou) This Book Is Organized 

Home-Based Business For Dummies is organized into five parts. The chapters 
within each part cover specific topic areas in detail. Because we've organized 
the book this way, you can easily find the topic you're looking for. Look in the 
index or table of contents for your general area of interest and then find the 
chapter that concerns your particular needs. Whatever the topic, odds are 
it's covered somewhere in this book. 

Each part addresses a major area of the hows, whats, and whys of starting 
your own home-based business. The following is a summary of what you'll 
find in each part. 

Part 1: Beginning at the Beginning 

For most people, starting a home-based business is a big undertaking. But 
every great journey begins with some small first steps. In this part, we take a 
look at what you need to know about starting a home-based business and 
take you on a tour of the very best home-based business opportunities both 
for today and tomorrow. We consider the ins and outs of effective marketing. 
Finally, we discuss how to make the Web work for you. 

Part 11: Managing \lour Money 

Money is the blood that keeps any business running: It's how you pay for 
your supplies, your computer, and other equipment and how you put some- 
thing aside for a rainy day. In this part, we take a close look at transitioning 
from a regular job into your own home-based business, as well as keeping 
track of your money and deciding how much to charge. We examine getting 
health insurance and planning for your retirement — and how to use the tax 
laws to your advantage. 


Part 111: Avoiding Problems 

There's more to starting a business than simply announcing that you're "in 
business." You have to choose and register a business name, consider zoning 
regulations, and set up and equip your home office. In this part, we present 
the most common legal considerations for home-based businesspeople and 
discuss which kinds of business relationships are most important to estab- 
lish and how you can establish them. Finally, we give you our best advice on 
avoiding scams and ripoffs. 

Part IV: Making It Work: Moi/iny Ahead 

Creating a successful home-based business requires more than a good idea; 
you need the ability to separate your business from your personal life and to 
know when to mix the two and when to keep them apart. In this part, you find 
out about establishing a serious business attitude and how to ensure that 
your business coexists peacefully with those people you share your home 
with. We also take a look at how to successfully grow your business, if you so 

Part V: The Part of Tens 

In this concise and lively set of condensed chapters, you can find tips to help 
start and maintain your home-based business. We show you how to succeed 
in your home-based business, what to do when times get tough, and much 

leans Used in This Book 

Icons are handy little graphic images that are meant to point out particularly 
important information about starting your own home-based business. You'll 
find the following icons in this book, conveniently located along the left 

This icon directs you to tips and shortcuts for making your home-based busi- 
ness a success. 

We've seen some pretty interesting things while working with home-based 
businesses, including our own. This icon points out some of our stories. 

Home-Based Business For Dummies, 2nd Edition 

*t/ ■<.: / : .-j \ Sometimes you need advice that goes beyond what we can provide in this 
to -i>, book. When that's the case, it's time for you to see a professional. 

*7 ..¥ \ Remember these important points of information, and your home-based busi- 
ness will be all the better for it. 

Danger! Ignore the advice next to this icon at your own risk! 


Paul and Sarah Edwards provide insightful answers to a variety of home- 
business questions. 

Where to Go from Here 

If you're new to business, you may want to start at the beginning of this book 
and work your way through to the end. There is a wealth of information and 
practical advice awaiting you. Simply turn the page, and you're on your way! 
If you already own and operate your own home-based business and are short 
of time (and who isn't short of time?), turn to a particular topic to address 
a specific need or question. Regardless of how you find your way around 
Home-Based Business For Dummies, we're sure that you'll enjoy getting there. 


Beginning at the 

The 5 th Wave 

By Rich Tennant 

*»^-v- • 

In this part . . . 

Starting your own home-based business can be a very 
exciting time — not only for you, but for those around 
you. Before you can start on your journey, though, you'll 
need to take your first step. In this part, we present an 
overview of the home-based business process and delve 
into the questions of which business is best for you and 
what opportunities offer the greatest rewards. We then 
move on to the basics of marketing and how to make the 
Web work for you. 

Chapter 1 

What You Need to Know about 
Home-Based Business 

In This Chapter 

Defining the home-based business 

Understanding the basics 

Dealing with the good and the bad news 

Congratulations! You've decided to start a home-based business. We wel- 
come you as you join with millions of others who have already made a 
decision to start a home-based business. According to the Small Business 
Administration (SBA), there are about 23.7 million businesses in the United 
States today. Of this total, 99.7 percent are small businesses (defined by the 
government as businesses with fewer than 500 employees), or about 23.6 
million. Of these, just over half — about 11.8 million — are home-based 

That's a lot of home-based businesses! 

Take it from us: Owning your own home-based business may be the most 
rewarding experience of your entire life. And not just in a financial sense 
(although many home-based businesspeople find the financial rewards to be 
significant), but also rewarding in the sense of doing the work you love and 
having control over your own life. 

Of course, every great journey begins with the first step. In this chapter, we 
provide you with an overview of this book, taking a look at the basics of 
home-based business — including getting started, managing your money, 
avoiding problems, and moving ahead. Finally, we'll consider some of the 
good news — and the bad — about starting your own home-based business 
and knowing when it's time to make the move. 

q Part I: Beginning at the Beginning 


Paul and Sarah's journey home 

Paul and Sarah began working from home 
before it was fashionable for anyone other than 
people in the construction trades, writers, 
artists, and craftspeople to do so. In fact, the 
neighbors wondered whether Paul was unem- 
ployed. (Paul's first home business was doing 
political and public-affairs consulting.) 

Sarah actually led the way home, to set up a 
psychotherapy practice as a way of reducing 
the stress she felt in her prior government posi- 
tions and to actively raise Paul and Sarah's 
young son. Says Sarah, "I didn'tfeel I had many 
choices as a working mother. Juggling a suc- 
cessful career and motherhood meant being 
exhausted most of the time and not being able 
to do either job with the dedication I wanted. I 
was determined, however, to have both a 
career and a family, so I did my best in a difficult 
situation." Doing her best meant a trip to the 
hospital with a stress-related illness where the 
doctor told her she would die if she didn't 
change her lifestyle — that was her wake-up 
call. She left her secure government job and 
opened a private psychotherapy practice in her 
home. In the 25 years since she did that, Sarah 
hasn't regretted her decision for even one day. 

For Paul, the decision wasn't an easy one, and 
it took some time for him to get used to the idea 
of having a home-based business. "Initially, I 
was hesitant about working from home," Paul 
says. "I had concerns about the image it might 
create and worried that I wouldn't get my work 
done. So when I started my own consulting firm, 
I opened a downtown office and hired a secre- 
tary." As time went on, Paul spent less time at 
his downtown office and more time working at 
home. Eventually, he decided to close the down- 
town office altogether and invited his secretary 
to join him in his home office. 

At first, Paul and Sarah's businesses were sep- 
arate, but in 1980 they decided to write a book 
about working at home. They wished such a 
book had existed for them when they got 
started. More and more people were asking 
them how they did it, indicating they wanted to 
work at home, too. That book. Working from 
Home, is now in its fifth edition, and they've 
written 15 others. For excerpts from those 
books, as well as daily messages, tips, and sup- 
port, visit their Web site at www. working 
f romhome. com. 

Home-Based Business Defined 

A home-based business is, not surprisingly, a business based in your home. 
Whether you do all the work in your home or on customers' or third-party 
premises, whether you run a franchise, a direct-sales operation, or a business 
opportunity (described in the next section), if the center of your operations 
is based in your home, it's a home-based business. 

Chapter 1: What You Need to Know about Home-Based Business 

The Basics of Home-Based Business 

Each part of this book is dedicated to a specific aspect of the home-based 
business process. In the sections that follow, we take a peek at the topics to 
be covered within each of these parts. 

What kind of business Witt it be} 

Once you decide you're going to start your own home-based business, you're 
left with two questions: Exactly what kind of home-based business should 
you start, and what's the best way to market your products or services? 

There are two major types of home-based businesses: businesses you start 
from scratch and businesses you can buy. The latter category of home-based 
business is further split into three types: franchises, direct selling, and busi- 
ness opportunities. Whether you prefer to march to your own drummer or 
get a business-in-a-box depends on your personal preferences: whether you 
like to create systems (or follow those of others) and how much structure 
you like. 

The advantage of a business you start from scratch is that it can be molded 
to your preferences and to existing and emerging markets, and thus provides 
a boundless variety of possibilities. Businesses started from scratch account 
for the majority of viable, full-time businesses — in other words, they tend to 
be more successful over the long run than businesses you can buy. (In their 
book Finding Your Perfect Work, Paul and Sarah provide an appendix with 
characteristics of over 1,500 self-employment careers and hundreds of 
examples in the book of unique businesses that people have carved out for 

Each type of home business that you can buy, on the other hand, has its own 
spin. Here are examples of the three different types. 


A franchise is an agreement in which one business grants another business 
the right to distribute its products or services. Some common home-based 
franchises include the following: 

v American Leak Detection (water/gas leak detection) 

u* Merry Maids (cleaning service) 

v* Kinderdance International (teaching dance to preschoolers) 

/ (/ Part I: Beginning at the Beginning 


*«* ServiceMaster (cleaning service) 

*«" Terminix Termite and Pest Control (pest control) 

Direct setting 

Direct selling involves selling consumer products or services in a person-to- 
person manner, away from a fixed retail location. There are two main types of 
direct-selling opportunities: 

w* Single-level marketing is making money by buying products from a 
parent company and then selling those products directly to customers. 

i* Multi-level marketing involves making money through single-level mar- 
keting and by sponsoring new direct sellers. 

Some common home-based direct-selling opportunities include the following: 

v Amway/Quixtar (household cleaning products) 

w* Discovery Toys, Inc. (toys) 

V Longaberger Company (baskets) 

i* Mary Kay, Inc. (cosmetics) 

u* Nikken, Inc. (wellness technology) 

Business opportunities 

A business opportunity is an idea, product, system, or service that someone 
else develops and offers to sell to others to help them start their own, similar 
business. (One way to think of a business opportunity is that it's any busi- 
ness concept you can buy from someone else that's not direct-selling or a 
franchise.) Your customers and clients pay you directly when you deliver a 
product or service to them. Here are several examples of business opportuni- 
ties that can easily be run out of one's home: 

is* Balloon Wrap, Inc. (balloon gift wrap) 

«-" Cardservice International (transaction service provider) 

is* Home Video Studio, Inc. (video studio) 

is* Rhino Linings USA, Inc. (truck bed liners) 

Interested in finding out the names of more companies and how to get in 
touch with them? Entrepreneur magazine (at www . ent repreneurmag .com) 
and gosma 1 1 biz. com also have extensive information on business opportu- 
nities you can buy. You can also do an online search for companies on Google 
(www . googl e . com), using the keywords business opportunity. 

Chapter 1: What You Need to Know about Home-Based Business / / 

So once you decide on a business and get it started, you've got to market 
your products or services and persuade people to buy them. You can choose 
conventional methods of promotion, such as advertising and public relations, 
or you can leverage new selling opportunities, such as the Internet, to your 
advantage. Or you can (and probably should) do both. It's your choice — 
you're the boss! Check out the rest of Part I for more information on choosing 
and marketing your business. 

Manaqinq your money 

Money makes the world go 'round, and because this is your financial well- 
being we're talking about, it's very important to have a handle on your 
money. This means you've got to do the following: 

*<* Find the money you'll need to start up your business. The good news 
is that most home-based businesses require little or no money to start 
up. For the rest of you, there are lots of sources of start-up capital, 
including friends and family, savings, credit cards, bank loans, and more. 

is* Keep track of your money. For most of us, this means using a simple 
accounting or bookkeeping software package, such as QuickBooks, 
Quicken, or Microsoft Money, to organize and monitor your business 

v* Set the right price for your products and services. Set your prices too 
high, and you'll scare customers away; set them too low, and you'll be 
swamped with customers, but you won't make enough money to stay 
afloat. Be sure to charge enough to cover your costs while generating a 
healthy profit. 

v* Obtain health insurance, and plan for your retirement. When you've 
got your own business, you're the one who needs to arrange for health 
insurance and setting up IRAs, 401(k)s, or other retirement plans for the 
day when you're ready to hang up your business and ride off into the 

w* Pay taxes. As someone famous once said: The only things you can count 
on in life are death and taxes. Well, taxes for sure. 

Be sure to check out Part II of this book for lots of detailed information on 
managing your money. 

Avoiding problems 

Eventually, every business — home-based or not — runs into problems. As 
the owner of your own business, it's very much in your interest to avoid 
problems whenever possible and to deal with them quickly and decisively 

7 w? P ar t ' : Beginning at the Beginning 

when they can't be avoided. Some of the problems you'll potentially deal with 
include the following: 

«-" Legal issues. After a good accountant, the next best friend of any busi- 
ness owner is a good attorney. Keep one handy to help you deal with the 
inevitable legal issues when they arise. 

u* Working with support services. Finding skilled and reliable outside sup- 
port services — lawyers, accountants, bankers, business consultants, 
and insurance brokers — is not necessarily an easy task, especially if 
your business is in a small town where you're pretty much stuck with 
what you've got. 

*<* Scams and ripoffs. There are loads of home-based business scams out 
there, and it seems that more appear every day. Part of avoiding scams 
and ripoffs is remembering these words: If it looks too good to be true, it 
probably is! Don't rush into any business opportunity; take your time 
and fully explore it before you sign on the dotted line. 

Want to avoid problems in your home-based business? Good. Simply move on 
to Part III, and you'll be well on your way to doing just that. 

Moi/iny ahead 

One of the best things about owning your own business is watching it develop, 
mature, and grow. A growing business is the gift that keeps on giving — all 
year 'round, year after year. So to keep your business moving ahead, consider 
doing the following: 

v* Maintain a serious business attitude. Just because your business is 
located at home instead of in a big office building downtown, that doesn't 
mean that you shouldn't treat it like the business it is. While you can 
have fun and work all kinds of creative schedules, don't forget that busi- 
ness is serious, too, and that you've got to treat your business like a 
business if you hope to be successful. 

i* Institute a truce with your friends and family. Moving forward with 
your business requires that you minimize disruptions caused by loved 
ones, neighbors, friends who work in regular jobs, and anyone else who 
can distract you from your work. Do whatever it takes to avoid the nega- 
tive impacts of such disruptions to your business. 

«-" Grow. For many businesses, growth can turn an operation that is doing 
well financially into an operation that is doing great! Growth allows you 
to take advantage of economies of scale that might be available only to 
larger businesses, to serve more customers, and to increase profits. For 
these reasons and more, growing your business should always be on 
your agenda. 

Chapter 1: What You Need to Know about Home-Based Business / j 


Peter's personal journey to independence 

When Peter Economy graduated from Stanford 
University with majors in human biology and 
economics, he had no idea what he wanted to 
do for work, aside from some vague notion that 
he should "get into business." He worked a 
number of jobs, starting in the federal govern- 
ment as a contract negotiator and then moving 
into the private sector for many years as an 
administrative manager before ending up back 
in local government. As time wore on, working 
for others became less and less palatable to 
him, and becoming his own boss became a 
seductive proposition. In 1990, Peter was fortu- 
nate to be approached by his good friend Bob 
Nelson to write a book on the topic of negotia- 
tion. Although Peter had no real desire to write 
a book, a bit of gentle persuasion (and the 
promise of a $2,500 advance) helped bring him 
around. This first book. Negotiating to Win, 
started him on a new career as a business 

In time, Peter was able to seriously consider 
devoting himself fully to starting a home-based 
business as a professional writer. In 1997, he 

got the kick in the pants he needed to make 
the move when he was told that, due to fund- 
ing cuts, he would be laid off from his local 
government job. And although a week later his 
employerfound additional funds and asked him 
to stay, he already had one foot out the door, 
and there was no turning back. 

Today, Peter runs his own home-based writing 
business. He works harder than he ever has 
before but has the satisfaction of knowing that 
every bit of work he does has a direct payoff for 
him and his family — not some distant company 
owners or shareholders. But although he works 
harderthan ever, he also gets to spend far more 
time with his wife and kids than he ever did 
before, and the commute to his office has been 
reduced from half an hour each way to about 30 
seconds. Is he happy? Yes. Would he go backto 
working a regular nine-to-five job? Not on your 

Do you have specific questions or comments for 
Peter? He'd love to hearfrom you. Visit his Web 
site at www. petereconomy .com, and drop 
him a line. 

To discover in-depth information on these particular topics, be sure to check 
a sat, out Part IV sooner rather than later. 

*$iF?nl? V\ Should you leave your full-time job and ramp up your part-time business? 

Ask yourself several questions: 

u* Has there been a steadily growing flow of new customers over your time 
in business? 

v" Has your business, even though part-time, been producing a steady flow 
of income through seasonal or other cycles typical of the business? 

V Are you turning away business because of limits on your time? If not, 
can you see that if you had the time to market or take on more cus- 
tomers, they would be there? 

/ [1 Part I: Beginning at the Beginning 

If you can answer at least two out of these questions in the affirmative, it's a 
good sign that it would be safe to leave your job. Of course, you should also 
be aware of any developments that could worsen the outlook for your busi- 
ness to grow, such as pending legislation, new technology, the movement of 
the kind of work you do outside the United States (outsourcing), or the 
decline of an industry your business is dependent on. 

If your work has been providing you the contacts you have used to build your 
part-time business, it's important you find ways to replace these. 

Breaking the umbilical cord of a paycheck is an uncomfortable step for most 
people. So the closer the current income from your business is to producing 
the money you need to pay your basic business and living expenses, the 
more confident you can be. 

The Good Alerts and the Bad 

Surprise, surprise: There's both good news and bad when it comes to starting 
your own home-based business. The good news is that the good news proba- 
bly outweighs the bad for most of us. So in the spirit of putting our best foot 
forward, let's start with the good news. 

Reasons to start a home-based business 

When you start a home-based business, you're leaving behind the relative 
comfort and security of a regular career or 9-to-5 job and venturing out on 
your own. How far out you venture on your own depends on the kind of 
home-based business you get involved in. Many franchises provide extensive 
support and training, for example, and franchisees (someone like you) are 
able to seek advice from experienced franchisees or from the franchisor (the 
party selling a franchise opportunity) when and if it's necessary. This sup- 
port can be invaluable if you're new to the world of home-based business. 

At the other end of the spectrum, some business opportunities offer little or 
no support whatsoever. If you're a dealer in synthetic motor oil, for example, 
you may have trouble getting the huge, multinational conglomerate that man- 
ufactures the oil to return your calls, much less send you some product 
brochures. Training or extensive, hands-on support if you run into the 
inevitable snags? Nope — that's not going to happen. 

Which brings us to the good news about starting and running your own 
home-based business: 

Chapter 1: What You Need to Know about Home-Based Business / J 

is* You're the boss. For many owners of home-based businesses, just this is 
reason enough to justify making the move out of the 9-to-5. 

is* You get all the benefits of your hard work. When you make a profit, it's 
all yours. No one else is going to try to take it away from you (except, 
perhaps, the tax man — see Chapter 10). 

*<* You have the flexibility to work when and where you want. Are you a 

night owl? Perhaps your most productive times don't coincide with the 
standard 9-to-5 work schedule that most regular businesses require their 
employees to adhere to. And you may find that — because interruptions 
from co-workers are no longer an issue and the days of endless meetings 
are left far behind — you're much more productive working in your 
workshop than in a regular office. With your own home-based business, 
you're the one who decides when and where you work. 

w* You get to choose your clients and customers. The customer may 
always be right, but that doesn't mean you have to put up with one who 
mistreats you or gives you more headaches than they're worth. When 
you own your own business, you can fire the clients you don't want to 
work with. Sounds like fun, doesn't it? (Believe us, it is!) 

v* You can put as much or as little time into your business as you like. 

Do you want to work for only a few hours a day or week? No problem. 
Ready for a full-time schedule or even more? Great! The more effort you 
put into your business, the more money you can make. You get to decide 
how much money you want to make and then you can work the kind of 
schedule that will help you meet your goal. 

These reasons to be on your own are just the tip of the iceberg. When you 
add it all up, you're left with one fundamental reason for owning your own 
home-based business: freedom. 


Admittedly, starting a home-based business isn't for everyone. In fact, for 
some individuals, it can be a big mistake. If, however, you have an entrepre- 
neurial spirit, and you thrive on being independent and in charge of your life, 
a home-based business may be just the thing for you. 

You have only one life to live. If you're tired of working for someone else, 
being second-guessed by your boss, or having your creativity stifled; if you're 
full of great ideas — ideas you know will lead you to success if you have the 
opportunity to put them into practice; if you long for something better, we 
have a message for you: There is something better. It's called a home-based 
business. And when you find the business that's right for you, it can change 
your life and the lives of those around you. 


Part I: Beginning at the Beginning 

The pitfalls of home-based businesses 

Starting a home-based business is not the solution to every problem for 
every person. Although many home-based businesses are successful, and the 
people who started them are happy with the results, more than a few home- 
based businesses end up causing far more headaches than their owners 
anticipated. Starting your own business is hard work, and there are no guar- 
antees for its success. 

So the next time you're lying on your sofa, dreaming of starting your own 
home-based business, don't forget some of the potential pitfalls: 

is* The business is in your home. Depending on your domestic situation, 
working in your own home — a home filled with any number of distrac- 
tions, including busy children, whining spouses or significant others; 
television; loaded refrigerators; and more — can be a difficult proposi- 
tion at best. 

is* You're the boss! When you're the boss, you're the one who has to get 
you motivated to work hard every day — there's no one standing over 
your shoulder (except maybe your cat) watching your every move. For 
some people, focusing on work is very difficult when they are put in the 
position of being the boss. 

*«* A home-based business is (usually) a very small business. As such, you 
will likely be more exposed to the ups and downs of fickle customers 
than larger businesses are. Not only that, but also, if a customer decides 
not to pay, it could be devastating to you and your business. 

is* You might fail or not like it. There are no guarantees that your business 
is going to be a success. Failure might cost you dearly, including finan- 
cial ruin (no small number of business owners have had to declare bank- 
ruptcy when their businesses failed), destruction of personal 
relationships, and worse. Not all small businesses close due to financial 
problems. The Small Business Administration has found that at the time 
of closing, one out of three businesses is financially sound. 

Regardless of these potential pitfalls, starting a home-based business remains 
the avenue of choice for an increasing number of people. Are you ready to 
join them? 

Understanding when you're ready 
to make the moVe 

Many people talk about starting a home-based business, and many dream 
about becoming their own bosses. Making the transition from a full-time 
career to self-employment, however, is a big change in anyone's life. Are you 

Chapter 1: What You Need to Know about Home-Based Business / / 

really ready to make the move, or should you put the idea of having your own 
home-based business on the back burner for a while longer? 

To help you decide, take the following quiz. Circle your answer to each of 
these questions, add up the results, and you'll know for sure! 

1. How strong is your drive to succeed in your own home-based business? 

A. I can and I will be a success. Period. 

B. I'm fairly confident that if I put my mind to it, I will succeed. 

C. I'm not sure. Let me think about it for a while. 

D. Did I say that I wanted to start my own business? Are you sure that 
was me? 

2. Are you ready to work as hard as or harder than you have ever worked 

A. You bet — I'm ready to do whatever it takes to succeed! 

B. Sure, I don't mind working hard as long as there's something in it 
for me. 

C. Okay, as long as I still get weekends and evenings off. 

D. What? You mean I'll still have to work after I start my own busi- 
ness? Isn't that why I hire employees? 

3. Do you like the idea of controlling your own work instead of having 
someone else control it for you? 

A. I don't want anyone controlling my work but me! 

B. That's certainly my first choice. 

C. It sounds like an interesting idea — can I? 

D. Do I have to control my own work? Can't someone control it for me? 

4. Have you developed a strong network of potential customers? 

A. Yes, here are their names and numbers. 

B. Yes, I have some pretty strong leads. 

C. Not yet, but I've started kicking around some ideas with potential 

D. I'm sure that as soon as I let people know that I'm starting my own 
business, customers will line up. 

/ Q Part I: Beginning at the Beginning 

5. Do you have a plan for making the transition into your home-based 

A. Here it is — would you like to read the executive summary or the 
full plan? 

B. Yes, I've spent a lot of time considering my options and making 

C. I'm just getting started. 

D. I don't believe in plans — they crimp my style. 

6. Do you have enough money saved to tide you over while you get your 
business off the ground? 

A. Will the year's salary that I have saved be enough? 

B. I have six months' expenses hidden away for a rainy day. 

C. Three months' worth. 

D. I'm still trying to pay off my college student loans. 

7. How strong is your self-image? 

A. I am self-esteem! 

B. I strongly believe in my own self-worth and in my ability to create 
my own opportunities. 

C. I feel fairly secure with myself; just don't push too hard. 

D. I don't know — what do you think? 

8. Do you have the support of your significant other/family? 

A. They're all on board, an integral part of my plan, and have been 
assigned responsibilities. 

B. They're in favor of whatever makes me happy. 

C. I'm pretty sure they'll support me. 

D. I'm going to tell them about it later. 

9. If it's a necessary part of your plan, will you be able to start up your 
home-based business while you remain in your current job? 

A. Sure — in fact, my boss wants in! 

B. If I make a few adjustments in my schedule, I can't see any other 
reason why I can't. 

C. Would you please repeat the question? 

D. Maybe I'll be able to work on it for a couple of hours a month. 

Chapter 1: What You Need to Know about Home-Based Business / y 

10. What will you tell friends when they ask why you quit that great job? 

A. I'm free at last! 

B. That the benefits clearly outweigh the potential costs. 

C. I don't know; maybe they won't ask. 

D. I'll pretend that I'm still working for my old organization. 

Tally up the numbers, and compare your result with the ranges of numbers 
below. Give yourself 5 points for every A answer, 3 points for every B, -3 for 
every C, and -5 for every D. 

By comparing your total points with the points contained in each of the six 
following categories, you can find out whether you're ready to jump into your 
own home-based business: 

25 to 50 points: Assuming you were honest with yourself as you 
answered the preceding questions (you were, weren't you?), you're 
ready! What are you waiting for? There's no time like the present to take 
the first step on your journey to success with your own home-based busi- 
ness. Whether you decide to drop your day job or work into your new 
business gradually, you're ready to give it your all. Read this book from 
cover to cover for tips on making your endeavor a raging success. 

1 to 24 points: You're definitely warming up to the idea of starting your 
own home-based business. Consider starting your own business in the 
near future, but make sure to keep your day job until you have your ven- 
ture well under way. Read this book from cover to cover to get a better 
idea of how to make a relatively painless and successful transition from 
your present career to owning a home-based business. 

points: You could go either way on this one. Why don't you try taking 
this test again in another month or two? Our advice? Read this book 
cover to cover before you begin your own home-based business. 

-1 to -24 points: Unfortunately, you don't appear to be quite ready to 
make the move from career to your own home-based business. We 
strongly recommend that you read this book from cover to cover and 
then take this test again in a few months. Maybe working for someone 
else isn't the worst thing that can happen to you. 

-25 to -50: Forget it. You were clearly born to work for someone else. 
Take this book, and sell it to a co-worker. 

More than 50 or less than -50 points: Hmm . . . we have a problem. 
Either you're getting a little rusty in your addition tables, or you hit the 
wrong key on your calculator. Try again! 

2(/ Part I: Beginning at the Beginning 


Keeping up with the scuttlebutt 

Q: I've never regretted starting my own busi- 
ness, but the one thing I do miss is being in 
the middle of the corporate buzz. How can I 
can stay connected with what's going on 

A: The first step is to figure out just what you're 
missing from being in the buzz of corporate life. 
Being part of the daily routine of an organization 
provides people with a whole array of experi- 
ences. Some, like office politics and dreadfully 
dull meetings, are a joy to get away from. But 
others leave a void that you must find ways to 
refill, such as the following: 

w Feeling like you're part of the downtown 
business community: Even when you're 
working from home, it's importantto get out 
of the house and participate in the business 
world. Join the chamber of commerce, and 
go to luncheons, after-work mixers, or 
evening meetings. Get active in various 
civic and charitable activities in your com- 
munity. These can lead to valuable business 
relationships while keeping you up with 
what's going on in town. 

w Getting in on the inside information and 
latest scuttlebutt in your field: You can 

replace this need by becoming active in a 
local chapter of your professional or trade 
association or by participating in their 
online listserv or forum. To find professional 
and trade associations in your field, do a 
search on the keyword association. 

j-" Establishing the esprit de corps from being 
part of a group that's working together 
toward a goal: If you crave experiences like 
this, affiliate with others and work on joint 
projects instead of working strictly solo. 

u* Finding moral support and positive peer 
pressure to stay focused — someone to 
bounce ideas around with, celebrate vic- 
tories, and commiserate disappointments 
with: To fulfill this need, form a group of col- 
leagues with whom you can meet weekly 
over lunch and call regularly to spur one 
another on toward your goals. 

u* Seeking out the expertise of superiors you 
can turn to for advice, getting honest feed- 
back, or talking over strategies and crucial 
decisions: If you're missing this type of 
interaction, seek out a mentor, form an advi- 
sory board for your business, or hire a con- 
sultant whose experience you respect. 
Some professional associations have 
formal mentor programs that offer this kind 
of contact. If yours doesn't, suggest that 
they consider adding such a service — or 
even volunteer to help organize it. 

*<" Using the Web: Though it's not a substitute 
for face-to-face contact, you can use the 
Web to locate other individuals, networks, 
and organizations in your own community 
through, for example, the message board 
operated by a trade or professional group 
you belong to. 

Are you ready to make the move to starting a home-based business? If the 
quiz indicates otherwise, don't worry — plenty of opportunities will be out 
there in the future. When you're ready for them, they'll be ready for you. If 
you're ready, congratulations! The rest of this book shows you what you need 
to do to make owning a successful home-based business a reality. 

Chapter 2 

Mirror, Mirror on the Wall, What's 
the Best Business of All? 

In This Chapter 

Starting a new business from scratch 
Buying an established business 
Considering your options 
Specializing to find your niche 

50 once you have decided that starting a home-based business is right for 
you, what's next? Choosing which kind of home-based business to start. 
Although on the surface that may seem like a fairly easy proposition, for 
many people it really isn't. There are thousands and thousands of businesses 
to choose among, each with its own set of pros and cons. And an opportunity 
that's hot today can be as cold tomorrow as a Minnesota winter. 

Before making your decision, research your options thoroughly. And above 
all, listen to your heart. Be sure that the opportunity is right for you, that it's 
truly something you will love doing, and that it is going to provide the poten- 
tial for long-term success. This is your future we're talking about (and, per- 
haps, the well-being of you and your family or loved ones), and the things 
you do today to prepare for it will pay off in a big way down the road. 

In this chapter, we take a close look at many different home-based business 
options available to you. 

w£w£ Part I: Beginning at the Beginning 


Top ten home-based business opportunities 

The following are Paul and Sarah's picks forthe *<" Interim or contract executive 
top ten home-based businesses: 

j-" Bodywork or massage therapy 

n" Computer consulting for small and home 

j-" Elder services 

<-" Financial advising 

*<" Pet sitting and other services for animals 

*<" Technical writing 

*<" Tutoring 

*<" Virtual assistant 

*<" Web merchant and auction trader 

Starting Something from Scratch 

There is a certain amount of pleasure in making something from scratch with 
your own two hands. It's the same pleasure a sculptor gets from creating a 
beautiful piece of art or a violinist gets from mastering a difficult piece of 
music. You may not get it right the first time — after all, it took Thomas 
Edison thousands of tries before he hit upon the right material for light bulb 
filaments — but when you do find the right formula for success, the feeling of 
satisfaction you'll experience will be hard to beat. 

Perhaps the quickest and least expensive way of starting your own home-based 
business is to do so from scratch. No need to fill out a bunch of applications or 
save up money to buy into a franchise, or take weeks or months to learn some 
complex, proprietary way of doing business. If you really wanted to, there's no 
reason you couldn't start your business from scratch — right now. 


A number of years ago, Peter's wife, Jan, started a successful medical-billing 
business out of their home. She built it from scratch. After deciding to start 
her business, the first thing she did was create a simple flyer on the family 
computer, print 100 copies, and distribute them throughout the neighbor- 
hood. Although her original idea — and indeed, the offer in Jan's flyer — was 
to do typing and desktop publishing, when her next-door neighbor, a psychol- 
ogist, suggested that she take on the billing for his thriving practice, a new 
business was born! 

If you decide to start a home business from scratch, you're in good company. 
Did you know that some of today's largest, most successful companies were 
started that way? There's no reason in the world that you can't enjoy the 
same level of success, if that's what you desire. Here are a few notable 

Chapter 2: Mirror, Mirror on the Wall, What's the Best Business of All? 23 

u* With $538 in working capital, Bill Hewlett and David Packard started 
their fledgling company in Packard's garage in Palo Alto, California. 
Today, Hewlett-Packard is a multinational corporation with sales in 
excess of $73 billion a year. 

*«" In 1950, Ewing Marion Kauffman started Marion Laboratories, Inc. (now 
known as Marion Roussel Hoechst) in his basement with a total invest- 
ment of $5,000. When the company merged with Merrell Dow in 1989, it 
was doing more than a billion dollars a year in sales. 

**" Jeff Bezos, founder and CEO of, started his business in his 
rented, two-bedroom house in Bellevue, Washington. To make room for 
his new home-based business, Bezos converted his garage into a work- 
space. And to save money — of which he had precious little in those 
early days — he built three desks out of three wooden doors, some 2x4s, 
and a handful of metal brackets. The cost? Sixty dollars per desk. Today, rakes in more than $5 billion a year — enough to pay for all 
the desks that Jeff Bezos would ever want to buy. 

Of course, these home-based business success stories are exceptional, but 
many home-based business owners find exactly the level of success they are 
seeking — while paying the bills, doing exactly the work they want to do, and 
serving the customers they want to serve. The real beauty of owning your 
own home-based business is that it is first and foremost your business. When 
you start a business from scratch, you write the rules, and you decide what's 
important. You might grow your business into the next Apple Computer 
(a former home-based business, started in the garage of cofounder Steve 
Jobs's parents' house), or you can simply enjoy a bit of extra income to sup- 
plement your earnings from a full-time career or other sources. 

Here are a few examples of people who have found exactly the level of suc- 
cess they wanted by starting their own home-based businesses: 

v* Dan Dorotik of Lubbock, Texas, started his own successful business — 
Career Documents, a resume-writing service — when he left his job to 
move to a different city with his fiancee and found himself out of work. 
Says Dan, "When I saw the money coming in, I realized that if you're 
really good at something — and if you're smart at the business and mar- 
keting side of it while maintaining the quality of the work — you can 
make a very good living for yourself." 

*<* Tim and Wendy Eidson dreamed about moving out of the big city and 
enjoying a simpler, more relaxing small-town lifestyle. But instead of just 
dreaming, they got to work; left their secure, lucrative jobs behind; and 
started selling hot sauce out of their garage in San Luis Obispo, 
California. Tim and Wendy created the popular mail-order hot-sauce 
business, Mo Hotta-Mo Betta. 

£ll Part I: Beginning at the Beginning 

v* In high school and pregnant, Alexis knew that she would have to find 
some way to support herself and her child. She started her El Cajon, 
California-based business — Demko Demolition Warehouse, which spe- 
cializes in recycling and selling items such as light fixtures and cabinets 
salvaged from building demolition projects — on a shoestring. She has 
done so well with her business that she was named entrepreneur of the 
month by CosmoGIRL! magazine. 

When starting a business from scratch, you can use one of two main 
approaches: Choose to do the same kind of work you have been doing in 
your regular job or career, or choose to do something totally different. In the 
following sections, we take a closer look at each approach and the advan- 
tages that each offers you. 

Doing what you hai/e been doing in a job 

As you consider the different options available to you in starting your own 
business, one of your first thoughts will undoubtedly be to do what you've 
already been doing in a job. 

And why not? You know the job, you're already experienced in it, and you 
know exactly what to expect. You also know what your customers want and 
how to give it to them. You may even have a network of potential customers 
waiting to sign up for your products and services. Doing what you've been 
doing has the following advantages: 

u* You can start up your business more quickly (like right now?) and more 
easily than if you choose to do something you've never done before. 

u* There is little or no learning curve, and there's no need for time- 
consuming and expensive training courses or workshops. 

Ten more home-based business opportunities 

Entrepreneur magazine (www. entrepreneur keeps track of the ten best ideas for 
new businesses (all of which, coincidentally, 
can be home based). Here's its most recent list: 

*<" Personal trainer 
*<" Tech consulting 
*<" Online games 

c" Consulting service 

*<" Maternity clothes 

w Financial planning 

*<" Online learning 

w Patriotic products 

*<" Life coach 

w Referral service 

Chapter 2: Mirror, Mirror on the Wall, What's the Best Business of All? 23 

Why women want to start their own businesses 

There are a variety of reasons why people want 
to start their own businesses; one of the most 
compelling is when regular 9-to-5 jobs and 
careers don't provide workers with the things 
that they expect and want. A recent survey of 
women by Roper-Starch (reported in USA 
Todarf found that 

v* 33 percentwant equal pay. 

v* 20 percent want more affordable health 

u* 15 percent want more flexibility at work. 

V 11 percent want more equal chores 
between spouses. 

*<" 8 percentwant more affordable daycare. 

*<" 8 percent want a four-day workweek. 

Many women — and men — have found that by 
starting their own businesses, they become the 
boss, and they get to decide how their busi- 
nesses will be run. And isn't that, ultimately, 
whatwe all dream about? 

u* You'll be much more efficient and effective because you've already dis- 
covered the best ways to do your job, along with time-saving tricks of 
the trade. 

u* You can capitalize on your good reputation, which may be your most 
important asset. 

W You can tap into your network of business contacts, clients, and cus- 
tomers (when ethically appropriate) and generate business more 
quickly than doing something new and different. 

For many people, doing something they've been doing is the best choice. 
Because it is often the quickest and least expensive avenue for starting your 
own home-based business, be sure to take a close look at this option before 
you consider any others. 

Doing something new and different 

Although doing what you've been doing in a job offers many advantages, 
doing something new and different has its own set of advantages. If you're 
burned out on your current job, and you dream of making radical changes in 
your career or lifestyle — for example, trading your high-pressure career as 
an attorney for a much more relaxing home-based massage business — doing 
something new and different may well be exactly what the doctor ordered. 

The following are some key advantages to doing something new and different: 


Part I: Beginning at the Beginning 


*«* Getting a fresh start in your career can be an extremely energizing expe- 
rience with positive repercussions for every aspect of your life, opening 
up exciting new possibilities and opportunities for you along the way. 

V Tapping into new career options allows you to find work that may not 
have even existed when you first started your career — for example, 
designing Web sites or computer-network consulting. 

Many successful home-based business owners have created businesses that 
have nothing to do whatsoever with what they had been doing as a full-time 
job. If you're sufficiently motivated, nothing can stand between you and suc- 
cess, no matter which business you choose. If you're looking to shake up the 
status quo or to make a break from the past, this may well be the best option 
for you. 

Buyinq a Business 

For many people, buying a ready-made home-based business is the way to go. 
Instead of learning how to run a business the hard way — through trial and 
error — when you buy a business, you buy a proven product, system, and 
support organization. Of course, you have to pay for these benefits, but the 
investment — if you choose wisely — can easily be eclipsed by the financial 
rewards of your new business. 

As you consider different home-based business opportunities, keep the 
following in mind: 

i^ Be sure there's a fit between you and the business. Some franchises 
and network marketing opportunities require that you adhere to strict 
rules and procedures, including the clothes you wear and the way that 
you present yourself and your business. If you're not comfortable with 
these kinds of restrictions, avoid such businesses. 

u* Be sure a market exists for the product or service you plan to offer. 

Talk to others who have bought the business you're interested in, and 
ask for their honest and candid feedback on the attractiveness of the 
opportunity. And don't just rely on a list of happy people provided by 
the company — do some research, and find people who may be more 
willing to tell you the real story. 

u* Be sure the company you select is credible and viable. This may very 
well be the most important thing to consider. Upward of 90 percent of 
businesses that offer franchises, direct selling, and business opportuni- 
ties (all described in the following sections) go bust within five years, 
leaving their owners high and dry (and sometimes bankrupt and out of 
work). Be sure that any company you're considering has been in busi- 
ness for five years or more. 

Chapter 2: Mirror, Mirror on the Wall, What's the Best Business of All? 2 / 

Four options for finding a new opportunity 

Many paths lead to finding the home business 
that's right for you. Over the past two decades, 
Paul and Sarah have interviewed thousands of 
self-employed individuals to discover exactly 
how they found the path that ultimately led them 
to their chosen destination. As a result of these 
interviews, Paul and Sarah found that the roots 
for new businesses come from four sources: 
talent, mission, passion, or assets. Successful 
home-based business owners invariably tap 
into one or more of these. 

j-" Talent: Each person has one or more innate 
talents or skills at which he or she excels. 
When you're able to tap into this talent or 
gift, and others value it and are willing to 
pay for it, developing a business around it 
can be rewarding, both financially and emo- 
tionally. About one in six home-based busi- 
ness owners become successful by taking 
advantage of their special talents or skills. 

j-" Mission: Those who follow a higher 
purpose — to make a positive difference in 
the people and the world around them — 
are following a mission. Although fewer 
than one in six people take this route in cre- 
ating their home-based businesses, for 
those who do, the personal rewards of 
seeing the impact of their work on others 
can be profound. 

j-" Passion: For some home-based business 
owners, the passion they feel to be their 
own bosses or to pursue the work that 
they truly love is so strong that it creates 

success in and of itself. For the person 
with a fire in his belly, no obstacle stands 
between him and the successful achieve- 
ment of his goals. About one in four home- 
based business owners have chosen this 
path to success. 

*<" Assets: Everyone brings assets when start- 
ing a home-based business. In some cases, 
these assets may take the form of previous 
work experiences; in other cases, theymay 
take the form of a network of friends or 
business contacts. While almost one of 
every two people who start a home-based 
business tap into their assets to do so — 
making it the most popular route by far — 
these businesses typically don'tfare as well 
as those based on talent, mission, or pas- 
sion. Why? Assets by themselves don't 
create excitement, intensity of purpose, or 
motivation, and absent these kinds of emo- 
tions, the business owners don't feel much 
drive to succeed. 

Clearly, your business has a much greater 
chance of success if it is built on a foundation 
of talent, mission, or passion. Although asset- 
based businesses can also succeed, the 
chances are less that they will. 

As you review potential business opportunities, 
be aware of your own talents, mission, or pas- 
sion, and keep them foremost in your mind, 
because your success will be directly propor- 
tional to the motivation that you bring to your 

The major categories of home-based businesses that you can buy are fran- 
chises, direct-selling opportunities, and business opportunities, covered in 
the three following sections. 

28 P art ' : Beginning at the Beginning 

Ten different ways 

to do what you love 

Can you honestly say that you love your job? If 

*<" Teach others to do what you love. 

not, have you ever thought about what you 
would do for a living if you had the opportunity? 

*<" Write about what you love. 

Guess what? You do have the opportunity to do 

*<" Speak about whatyou love. 

what you love! Millions of home-based busi- 
ness owners are doing just that and creating 

*<" Create a product related to whatyou love. 

incredible success for themselves in this 

*<" Sell or broker whatyou love. 

process. Here are ten ways that you can do 
what you love: 

*<" Promote whatyou love. 

V Provide a service to others who do what 

*<" Organize whatyou love. 

you love. 

*<" Set up, repair, restore, fix, or maintain what 

v* Focus on doing just the things you love. 

you love. 

Home-based franchises 

If you've ever eaten at a McDonald's restaurant, you know what a franchise is. 
No matter which McDonald's restaurant you visit, whether it's in Iowa, 
England, or Hong Kong, you can be fairly certain that your cheeseburger and 
French fries are going to look, feel, and taste the same. In a world attracted 
to corporate icons such as the golden arches, franchising has taken the world 
of business by storm. According to a report published by the International 
Franchise Association (www . f ranchi se . org), franchises employ more than 9 
million people and produce more than $600 billion of economic output a year, 
just within the United States. 

Although popular franchises such as Subway, Curves, Quiznos, and Burger 
King are easy to think of, if we asked you to identify a popular home-based 
franchise, you would probably have a harder time. Although many home- 
based franchises are out there, you may not be aware that franchises are 
available in an incredible array of sizes, shapes, and styles. From cleaning 
services to babysitting to photography studios, a home-based franchising 
opportunity to fit most anyone's needs is out there. 

What's a franchise} 

A franchise is an agreement in which one business grants another business 
the right to distribute its products or services. Typically, the company that 
grants the franchise has developed a successful and proven business model 
that is easily replicated by others. According to franchising expert Gregory 
Matusky, three elements define a franchise company: 

Chapter 2: Mirror, Mirror on the Wall, What's the Best Business of All? 2^ 

v* Use of a trademark or a trade name 

«-** Payment of fees or royalties 

v Significant assistance provided by the franchisor 

As the old saying goes, "It takes two to tango." Similarly every franchise 
agreement involves two key parties: 

*<* Franchisor: The company that owns the franchise trademarks, trade 
secrets, and successful business model. 

*«" Franchisee: The individual or other entity who pays the franchisor for 
use of trademarks, trade secrets, and successful business model. 

Of course, all the trademarks, successful business models, and assistance 
come at a price. Fees are paid by the franchisee to the franchisor in the form 
of one or more of the following: 

*<* A one-time payment 

j-"* An ongoing flat-fee payment 

v* Ongoing sliding-scale payments 

*<* Ongoing royalties 

i* Advertising fees 

The fees paid by the franchisee to the franchisor vary considerably from 
opportunity to opportunity. For example, the initial fee to buy into a 
McDonald's franchise is around $45,000. However, actual startup costs 
(leases, building, equipment, labor, supplies) for a location run from $400,000 
to more than $1 million. On top of that, franchisees are required to pay a roy- 
alty rate of 12.5 percent or more on every dollar that they bring in. Despite all 
these fees, McDonald's franchises — though certainly unsuitable for a home- 
based business — are considered to be among the most desirable of all. 

On the other hand, Jani-King, a popular home-based business franchise that 
specializes in commercial cleaning services, has an up-front franchise fee of 
between $8,600 and $16,300, startup costs of $3,000 to $18,000, and an ongo- 
ing royalty rate of 10 percent. This is a substantially more affordable invest- 
ment than the bricks-and-mortar opportunity presented by a McDonald's 
franchise, and you can run the business out of your own home. Of course, 
each has its pluses and minuses — you have to decide which is best for you. 

For an extensive listing of franchising opportunities, both home based and 
not, check out Entrepreneur magazine's franchise 500 list on its Web site at 
www. If you're the slightest bit interested in buying a 
franchise, chances are you'll find this list to be interesting reading! 

j(/ Part I: Beginning at the Beginning 

Legal issues in franchising 

As with many areas of business, franchising is chock-full of laws and regula- 
tions. In addition to the usual bevy of federal laws, many states have their 
own stringent rules and regulations that supercede federal laws. Keep in 
mind that most franchising laws and regulations actually protect the fran- 
chisor, not the franchisee! 

is* The uniform franchise offering circular: In states that don't have their 
own specific franchising laws, the Federal Trade Commission (FTC) has 
established a comprehensive code of regulations that are often referred 
to as the franchise rule. As a part of the franchise rule, franchisors are 
required to provide prospective franchisees with a detailed disclosure 
statement, called the uniform franchise offering circular (UFOC). 

Before you think about buying a franchise, be sure you get a copy of the 
company's UFOC and study it carefully. It contains valuable information 
that can have a dramatic impact on your decision not to buy into a par- 
ticular franchise opportunity. If you have any questions, ask the fran- 
chisor for clarification. 

A UFOC contains the following valuable information: 

• The franchisor's name 

• A complete and accurate description of the business 

• A listing of people affiliated with the franchisor 

• Background information on the franchisor and principals in the 
company, including business experience and track record 

• The franchisor's financial information 

• Detailed information on the number of franchises, their failure rate, 
and their termination rate. (Failure is a matter of closing a com- 
pany's doors, usually for financial reasons. Some franchise opera- 
tors prevent this from happening by reacquiring the franchise from 
the franchise holder. The franchise is therefore terminated but 
technically not a failure. This helps keep those statistics about suc- 
cess in franchising looking good.) 

• Bankruptcy and litigation histories of the franchisor and principal 

• The franchise fee 

• Ongoing fees, royalties, and other payments to be paid to the 

• An itemized list of goods and services that must be purchased, 
rented, or leased directly from the franchisor 

• Terms of franchisor-provided financing (if applicable) 

• Restrictions on how you are to operate the business 

Chapter 2: Mirror, Mirror on the Wall, What's the Best Business of All? j / 

• Training programs available to the franchisee 

• Information on the renewal, cancellation, and termination of the 

For further information on franchising laws and regulations, consult 
your state attorney general's office, or contact the Federal Trade 
Commission at www. ftc. gov. 

is* The elements of a franchising agreement: Franchises depend on fran- 
chise agreements — contracts setting forth the rights and the obligations 
of the franchisor and the franchisee — to define the legal relationship 
among all involved parties. A franchise agreement is negotiable. Be sure 
to read and understand it thoroughly before you sign. Even better, have 
a competent lawyer who specializes in franchise law take a look at it. 
Believe us: A few hundred bucks invested in a legal review up front may 
save you many thousands of dollars (and countless headaches) down 
the road. 

Here are the most common elements of a franchising agreement: 

• Grant of franchise: Defines the nature of the franchising 

• Use of trademark(s), patents, and copyrights: Spells out exactly 
how you can use the franchisor's trademarks, patents, and 

• Defining the parties: Lists the parties to the agreement and sets 
forth the independent relationship between the parties. 

• Payments: Spells out the franchise fee and any other required roy- 
alties or payments. 

• Term of agreement: Enumerates the length of time that the agree- 
ment will be in effect. About half of all franchise agreements run for 
ten years, while a large percentage have five-year agreements. 

• Renewal of franchise agreement: Details the mechanism for 
renewing the agreement. 

• Developing and opening: Details the length of time that you have 
to open your business after signing the agreement, usually 90 to 
120 days. 

• Territory: Spells out any restrictions on the areas in which you 
may operate. Generally, the larger the territory, the larger the fran- 
chise fee payable. 

• Advertising: Sets forth requirements for using the franchisor's 
logos, advertising designs, trademarks, and so on in advertising. 

• Equipment and supplies: Spells out what supplies and services 
must be purchased directly from the franchisor. 

3^" Part I: Beginning at the Beginning 


• Franchisor-provided training and assistance: Details training 
offered by the franchisor, as well as any ongoing support and 

• Assignment of franchise: Describes any special rules for transfer- 
ring ownership to another person or entity, should the franchisee 
decide to sell the business. 

• Termination of franchise agreement: Sets forth the legal require- 
ments for terminating the agreement. 

Be absolutely sure that you understand every part of your franchising 
agreement — and agree with its terms and conditions — before you sign 
it. We don't mean that you should just read it over and be generally 
familiar with the opportunity; we mean understand exactly what every 
sentence means and how it will impact the way that you do business, 
as well as your rights and obligations now and in the future. You have 
your greatest leverage as you're considering a variety of franchising 
opportunities — but not after you've signed your agreement. 

Franchising pros and cons 

Buying a franchise brings potential positives and negatives. When deciding 
whether buying a franchise is the best way to start your own home-based 
business, weigh these pros and cons, and discover the best path for you. 
Here are some of the elements that franchises often have in their favor: 


u* Buying into a franchise that has a proven track record and ongoing train- 
ing and support can translate into a quick startup phase and almost 
immediate cash flow. And don't forget: Happiness is a positive cash flow. 

*-" Established, successful franchises are proven systems that are almost 
guaranteed to meet your financial expectations. As long as you play the 
game by the franchisor's rules, it's hard to lose. 

*«* Many people who start up a home-based business have never actually 
owned or run a business before. A good franchisor provides extensive 
training in how to operate and market the business. 

*«* You have access to a network of other franchisors who are in a business 
just like yours. Many franchisors sponsor special Web sites, confer- 
ences, or conventions that get franchisees together to talk shop and 
share their experiences. 

is* Many franchisors provide opportunities for regional and national coop- 
erative advertising — saving you money while giving your business 
more exposure than you would probably get on your own. 

Of course, you want to think about the downsides to buying a franchise. 
Before you sign on the dotted line of that franchise agreement, be sure that 
you can tolerate these potential negatives: 

Chapter 2: Mirror, Mirror on the Wall, What's the Best Business of All? Jj 

u* You're required to follow someone else's system and procedures. For 
some prospective owners of home-based businesses, the whole point of 
starting a business is to get away from following someone else's rules. 

u* You work without a great deal of supervision and direction. No one's 
going to get on the phone to wake you up if you're late to work; no one's 
going to constantly urge you to work harder or sell more. If you're not a 
self-starter, or if you lack the confidence to sell yourself and your prod- 
ucts or services, this could be a very real problem, and it could jeopar- 
dize your prospects for success. 

v* You may be required to pay an ongoing fee or royalty to the franchisor 
for the life of your business. Of course, if you're making lots of money, 
this likely won't be a problem. But if your business is marginal, franchise 
fees and royalties can quickly become an anchor that drags you and 
your business down with it. 

*«* Ultimately, the franchisor is still the boss. You have to follow the fran- 
chise's policies and procedures whether you agree with them or not. If 
you don't, you may be in violation of your franchise agreement — poten- 
tially resulting in nasty lawsuits, loss of income, and the termination of 
your business. 

v* There are no guarantees. Your business may or may not be a success, 
despite all your hard work, all the money you invest, and all the time 
you devote to it. Any business is a risk, and a home-based business that 
you own makes that risk a very personal one. 

v* The franchise agreement may not protect you against competition from 
other distributors, particularly those using the Internet. Long story 
short, you may make less money than you thought or were led to 

What kind of people do best with franchises? Research indicates that a 
number of personality traits come into play, including a person's influence 
with others, his willingness to comply with company rules, and his ability to 
think on his own two feet. To take a detailed test to see if your personality 
traits match those of the people who have been most successful in fran- 
chises, check out Paul and Sarah's book Home Businesses You Can Buy. 

If you decide that franchising is something you would like to explore further, 
thoroughly research all the possible opportunities to find the one that is the 
best fit for you. After you identify an opportunity that you wish to pursue, 
talk to current owners of the franchise, and get their candid opinions of the 
opportunity — both the good and the bad. And be sure to see what kinds of 
information you can find about your prospective franchise on the Internet. 
Disgruntled franchisees are often not very shy about telling others about 
their bad experiences, and some post their stories on a variety of Web sites. 
Some even set up their own Web sites specifically to warn others. Just be 
sure that you take such stories with a grain of salt until you can verify that 
they are indeed true. 

jU Part I: Beginning at the Beginning 


Buying and operating a franchise will likely require a lot of money and a lot of 
your time and effort over a long period of time. It's in your best interest to be 
absolutely sure — before you sign the franchise agreement — that it's the 
best one for you. 

Direct-setting opportunities 

Direct selling means selling a consumer product or service in a face-to-face 
manner away from a fixed retail location. According to the Direct Selling 
Association (www . dsa . org), this kind of business has taken the world by 
storm. In a recent year, 13 million people sold more than $28 billion worth 
of products through direct-selling opportunities. The kinds of products sold 
included home and family care products, such as cleaning supplies, cook- 
ware, and cutlery; personal care products, such as cosmetics, jewelry, and 
skin care products; wellness products, including weight-loss products and 
vitamins; and leisure and educational products, such as encyclopedias, toys, 
and games. 

And the companies that offer direct-selling opportunities are household 
names: Nu Skin, Discovery Toys, Amway, The Fuller Brush Company, 
Tupperware, Nikken, Primerica, and many others. 

There are two main types of direct-selling opportunities: 

**" Single-level marketing: Single-level marketers make money by buying 
products from the parent company and selling them directly to their 

l** Multi-level marketing: Multi-level marketers make money both by 
buying products from the parent company and selling them to cus- 
tomers and by sponsoring new direct sellers. 

What is singte-teUet marketing} 

Single-level marketing is simple: A direct seller buys products from a parent 
organization and sells them directly to his or her customers. Home-based 
businesspeople have been pursuing single-level marketing for years, and 
you'll probably recognize the names of some of the most successful 

W Avon 
*«* Electrolux 
u* Tupperware 
*-" Kirby 

Chapter 2: Mirror, Mirror on the Wall, What's the Best Business of All? 33^ 

While much of the media spotlight that shines so brightly on the direct-selling 
industry tends to focus on multi-level marketing organizations, single-level 
selling produces about 20 percent of direct-selling revenues, or just under 
$6 billion in a recent year. 

What is multi-fe</e( marketing} 

From its humble beginnings in California in 1945, when Lee Mytinger and 
William Casselberry formed California Vitamins to sell their vitamin supple- 
ment (called Nutrilite), multi-level marketing (MLM) — also known as network 
marketing or person-to-person marketing — has grown to an incredible $22 bil- 
lion in sales a year in the United States alone, employing more than 10 million 

What makes multi-level marketing special is its unique system of selling, in 
which salespeople take on two key roles: 

*-" Distributor: As a distributor of a product, your job is to buy product 
from the parent company and sell it directly to the public — usually to 
friends, relatives, and work associates. Every time you sell an item, you 
make a profit. 

u* Recruiter: As a recruiter, you sign up other distributors to work for you. 
Every time your distributor buys an item from the parent company, you 
receive a percentage of the profit. 

Multi-level marketing gives you two ways to make money — by selling prod- 
ucts as a distributor and by signing up new distributors and taking a portion 
of their product sales. As you sign up new distributors, you create what's 
known as a downline: all of the people you sponsor into the program, as well 
as the people they sponsor, and so on. In multi-level marketing, an upline is a 
distributor's sponsor, as well as the other sponsors above him or her in the 

The most highly successful multi-level marketers make far more money 
through their downlines than they do actually selling product themselves. 
Because of this, many multi-level marketers focus most of their efforts on 
recruiting new distributors to join their downline and motivating the individ- 
uals in their downline to recruit new distributors. 


Warning! It is against U.S. law for a multi-level marketing organization to only 
recruit distributors — and collect fees from them — without also selling 
products. Such an arrangement is called & pyramid scheme, and it is set up 
specifically to make its creators rich while relieving everyone else of their 
hard-earned money. Be particularly careful about so-called opportunities 
where you sell something that has little or no intrinsic value, such as a 
"special" report on how to make money on the Internet. Such thinly veiled 
pyramid schemes will land you in very hot water if you are caught. 

jO Part I: Beginning at the Beginning 


Finding a home-based business that's compatible 
with a military career 

Q: I am currently an active Navy member look- 
ing for a business to take me out of the Navy. I 
need something with low startup costs and 
overhead — a business that could start as a 
part-time venture and bloom into something full 
time. I have been searching for a while. Please 
give me any suggestions. 

A: Many full-time businesses can be started 
from home, on the side. In fact, that's the prefer- 
able way to start out on your own. You can test 
the viability of your idea and go through the 
learning curve while you still have income 
coming in. The best sideline businesses don't 
require a lot of marketing or administrative 
tasks, leaving you free to devote your limited 
time to income-producing work. So you wantto 
choose a service or product that's in high 
demand and easy to sell. Also, your business 
will need to have flexible hours so you can run 
the business after or around your current work- 
ing hours. 

Whatever business you choose needs to be 
something you truly enjoy doing, something you 
know enough about to do well (or are willing to 
invest time learning while you still have a job), 
and something for which you can identify a spe- 
cific market thatyou can easily reach. 

Often, the best solutions are quite unique to the 
business owner. 

v* A woman who wanted to be at home with 
her children had an inspiration: Because 
her husband collects bow ties, she decided 
to become a Web merchant selling hand- 
made bow ties through the Internet. 

V An aerospace engineer had been an avid 
amateur photographer for years before 
starting a sideline photography business. 
By the time his job was downsized, he 
already had a growing clientele. 

These businesses certainly won't work for 
everyone, but each was an ideal match for its 
owner. Look closely at your interests, skills, and 
assets, and think of how you could use them to 
meet the needs of specific individuals or com- 
panies who would gladly pay for your help. Pay 
attention, also, to some factors that are partic- 
ular to starting a business while on active duty. 
If you live in military housing, you need to get 
permission to use your home for your business 
from your local command, although this is usu- 
ally granted. 

Also be sure you're clear on the ethical limits of 
doing business with other members of the mili- 
tary. Many military personnel go into business 
with their spouses so that their businesses get 
developed without conflicting with their military 
duties. Keep in mind that soliciting to other 
members of the military of a junior ranking is a 
no-no. This includes their spouses and depen- 
dents. Primarily, then, you may be building in the 
nonmilitary population. After you're consistently 
earning enough income from a part-time busi- 
ness to cover your bare-minimum living and 
business expenses, you're ready to make the 
jump to full time. Be sure to check out Chap- 
ter 5, though, for several steps to take before 
turning in your resignation. 

Chapter 2: Mirror, Mirror on the Wall, What's the Best Business of All? j / 

The pros and cons of direct setting 

According to the enthusiastic sales pitches of recruiters for many direct- 
selling opportunities, signing up to sell their products will put you squarely 
on the road to riches. Although that may very well turn out to be the case 
(every direct-selling opportunity has its successes, often people who got into 
the business early and established a large downline), it also may not be. Of 
course, no kind of business can guarantee profits — direct selling included. 

Direct-selling opportunities are geared to the home-based businessperson, 
and the right opportunity may be just what you're looking for. Here are some 
of the positive attributes of direct selling: 

t-" Because startup costs are generally low, you have little financial risk if 
the business fails — certainly lower than most franchises and business 
opportunities. (Beware of direct-selling opportunities with high startup 
costs — these are often scams!) 

v* High earning potential is possible (although relatively few people actu- 
ally make six-figure incomes). Mary Kay, Inc. really does give out pink 
Cadillacs to its top salespeople. If you're the right person in the right 
place at the right time, the sky really is the limit. 

*-" Most direct-selling programs are designed specifically to be home-based 
businesses and are often geared to women (66 percent of U.S. direct 
sales distributorships are one-person distributorships, owned by a 

*«* Your direct-selling parent company generally provides you with sales 
and promotional materials, as well as bookkeeping, sales tracking, and 
commission data. 

*<* You can work as many or as few hours as you like. Part time, full time — 
all kinds of work arrangements abound in direct selling. In fact, the clear 
majority of people who have chosen direct-selling opportunities work 
part time, some while working other, full-time jobs. 


Because of the need of those in multi-level marketing to continuously recruit 
a downline of new distributors — to replace those who fall by the wayside, as 
well as to grow their own organizations — competition for recruits can be 
quite lively. This tends to put a lot of pressure on those being recruited. 
Aside from these kinds of minor indignities, you may experience a number of 
negatives with direct selling. Here are a few: 

v* Many direct-selling businesses are here today, gone tomorrow. While a 
number of companies have been around for years and will likely be 
around for years to come (including such companies as Amway and 
Mary Kay), far too many direct-selling firms have lifespans that can be 
measured in months. 

jO Part I: Beginning at the Beginning 

u* Direct selling has a poor reputation with many people, often making 
recruiting new distributors (and selling products) a difficult proposition. 

u* Motivating your downline to sell more products and sign up new distrib- 
utors can require more of your time and attention than you may imagine. 
And the more distributors you sign up, the bigger the job. 

W Few people in direct selling make enough money to make it a full-time 
profession. According to industry figures, about 90 percent of the indi- 
viduals working in direct sales do so on a part-time basis. Of this 
number, about half make $500 or less a year; the other half makes up to 
$5,000 per year in direct sales. It is indeed the rare direct salesperson 
who makes enough money in her own business to support herself and a 

u* Friends, relatives, and coworkers may quickly tire of your constant 
attempts to sell them products or recruit them into your downline. If 
they cross the street or duck behind a tree when they see you coming, 
you're pushing too hard. 

Business opportunities 

If the ready-made company you're thinking of buying into isn't a franchise 
and isn't direct selling, chances are it's a business opportunity. Although fran- 
chises and direct-selling opportunities have well-defined, unique structures, 
business opportunities come in all flavors, shapes, and sizes. In general, how- 
ever, a business opportunity can be defined like this: 

An idea, product, system, or service that someone has developed and offers 
to sell to others to help them start their own, similar businesses. 

Business opportunities can take most any form, but they all fall into one or 
more of the following eight categories: 

is* Broker: A broker is someone who buys or sells products or services for 
a parent company, often acting as an agent. Common examples include 
real estate and insurance brokers. Although brokers are independent 
contractors, they are generally paid commissions by the parent com- 
pany for their efforts. 

is* Dealer: Dealers represent lines of products, which are purchased from a 
parent company and sold directly to consumers. An example of this is 
someone who sells windows or wooden doors that are produced by sev- 
eral different companies to local home builders and uses his or her 
home as a base of operations. 

is* Distributor: Distributors buy products from wholesalers (and some- 
times from manufacturers) and resell them to direct-sales organizations, 
brokers, and dealers. Distributors generally don't sell directly to con- 
sumers or end users. 

Chapter 2: Mirror, Mirror on the Wall, What's the Best Business of All? 3 9 

Is that direct-selling opportunity real or not? 

As with any other business that you may be 
considering, check it out before making a com- 
mitment. Unfortunately, direct selling has a 
bit of a reputation as being fraught with less- 
than-reputable opportunities and — in some 
cases — outright fraud. The Direct Selling 
Association (DSA) at www. ds a .org offers the 
following advice for checking out any direct- 
selling opportunity before you buy into it: 

(*" Identify a company and product that appeal 
to you. Check the DSA list of member com- 
panies, or look in your local phone book. 

(*" Take your time deciding. Does "getting in 
on the ground floor" mean that everyone 
joining after you will be less satisfied or 
happy? A legitimate opportunity won't dis- 
appear overnight. Think long-term. 

v* Ask questions. Ask about the company, its 
leadership, products or services, startup 

fees, realistic costs of doing business, aver- 
age earnings of distributors, return policies, 
and anything else you're concerned about. 
Get a copy of all company literature. And 
read it! 

Consult others who have had experiences 
with the company and its products. Check 
to see if the products or services are actu- 
ally being sold to consumers. 

Investigate and verify all information. Don't 
assume that official-looking documents are 
accurate or complete or even produced by 
the company, as opposed to the person 
trying to recruit you. 

Need help evaluating a company? Check 
the list of Direct Selling Association mem- 
bers at www.dsa . org, or call your Better 
Business Bureau, state attorney general, or 
consumer-protection offices. 

u* Licensee: Licensees buy the right to sell, market, produce, or use estab- 
lished product brand names, technologies, or systems. A bit like a fran- 
chise, licensees have much greater freedom to run their businesses as 
they see fit. 

u* Mail-order business: Mail-order businesses take orders for products 
(and, in rare cases, services) over the phone, or via e-mail or the 
Internet, and send those products to end users. In some cases, mail- 
order businesses can have products shipped directly (sometimes called 
drop shipped) from their manufacturers, removing the need to maintain a 
product inventory and dramatically improving cash flow. 

*«* Vendor: Vendors sell materials and supplies to other companies for their 
own consumption (for example, office supplies), for use in their own 
production processes (for example, titanium ingots), or for resale to 
consumers or other companies. 

v* Manufacturer: Manufacturers build and produce products that are even- 
tually sold to consumers. Manufacturers can sell directly to consumers 
in a variety of ways (direct sales, mail order, or the Internet) or to bro- 
kers, dealers, wholesalers, and others. 

[l(j Part I: Beginning at the Beginning 

*«* Wholesaler: Wholesalers buy products directly from manufacturers, 
mark up the price, and sell them to retailers — the people who deal 
directly with the end consumer. In most cases, wholesalers don't sell 
directly to the public. 

Although some of these categories overlap to some degree, each represents a 
unique facet of the total universe of business opportunities available to you. 
As you can imagine, the kind of business opportunity that you select has a 
significant influence on how you do business, whom you sell to, and the way 
you market your products and service your customers. 

For many people, business opportunities are exactly the right choice for a 
home-based business. Is a business opportunity the right choice for you? 
Take a look at the pros and cons of business opportunities, and decide for 
yourself. The following are some of the things that make business opportuni- 
ties attractive propositions: 


is* Business opportunities are not as strictly managed by parent companies 
as are franchises or network marketing businesses. This provides the 
owner with substantial independence and freedom to run the business 
as he or she sees fit. 

v* Many business opportunities offer good, steady income. The upside may 
not be as dazzling as some network marketing opportunities, but the 
chances of your succeeding on a full-time basis are much greater. 

*«* Many business opportunities are suitable as home-based businesses. 

v* Startup costs are generally far less than most franchising opportunities. 

v* You can work whatever hours as you like. Part time, full time — all kinds 
of work arrangements abound in business opportunities. Many pursue a 
home-based business opportunity with a full-time job. 

Of course, business opportunities also have their potential problems. Here 
are some things to consider before you sign on the dotted line: 

v* The independence of most business opportunities can be a disadvan- 
tage if you don't already have some experience in sales or running your 
own business. Few business opportunities provide the level of support 
that good franchises or direct-selling opportunities do. 

*«* There's little regulation of business opportunities by the federal govern- 
ment, and state and local regulations vary. Beware of scams! There are 
plenty. If it sounds too good to be true (getting rich stuffing envelopes, 
clicking Web sites), it probably is. 

w* Most owners of legitimate business opportunities work far harder than 
they ever did in a regular 9-to-5 job. Chances are, you will, too. 

v* There is always a possibility that your business will fail. Be sure to have 
the financial resources available (in other words, sufficient savings in 
the bank) to weather a serious business setback or misfortune. 

Chapter 2: Mirror, Mirror on the Wall, What's the Best Business of All? (^ / 

As in any other business, thoroughly explore all your options before you 
invest your hard-earned money in a particular business opportunity. Most 
business opportunities require little in the way of an up-front payment — so 
even if things don't work out how you planned, you can change course and 
give a different one a try. For more on different kinds of home-based busi- 
nesses, many of which may be right for you, pick up Paul and Sarah's book 
Home Businesses You Can Buy (co-authored by Walter Zooi). 

Identifying Which Option 1$ Best far \lou 

Between creating your own business from scratch and buying a business, you 
can find an amazing array of options and opportunities. In fact, all your 
choices may be a little overwhelming. How can you decide which option is 
the best one for you and be sure you don't make the wrong choice? 

Although you can never be 100 percent sure how a particular path will turn 
out until you embark upon it, use the following indicators to help you gain a 
better sense of which option will be the best one for you to pursue: 

U* Desire to sell: Some people naturally love to sell. Do you? Most direct- 
sales and business opportunities require a lot of selling — no sale, no 
income. Does the opportunity you're considering (and the style of sell- 
ing you have to adopt to be successful) fit with your natural selling abil- 
ity and desire? If not, this option may not be the best one for you. 

u* Ideas you already have: You may already have some idea of the busi- 
ness you want to start and how to run it. You have more freedom to 
pursue your own unique ideas if you start it from scratch or if you 
pursue a business opportunity Franchises and direct selling generally 
require that you closely follow the parent company's established system. 

u* How independent you are: Do you relish the idea of being your own 
boss and calling your own shots, or would you rather have the comfort 
that comes from following someone else's direction? Either approach is 
fine, so long as it matches your own personality. When you start a busi- 
ness from scratch or buy into a business opportunity, you're pretty 
much on your own and really are your own boss. Most franchises 
require that you follow strict policies and procedures, and take direction 
from the parent company. Direct-selling organizations are usually some- 
where in between. You won't find a right or wrong answer here — you 
have to assess which situation you're most comfortable with. 

i^ How much money you want to make: Do you just want a little extra 
money for a rainy day, perhaps on a part-time basis? Or do you want to 
make enough money to pursue your business full time? Your answers 
point you toward certain businesses and away from others (for example, 
about half of the people in direct-selling opportunities such as Avon or 
Mary Kay Cosmetics make $500 or less a year). 

IX 1 2 Part I: Beginning at the Beginning 

is* How unique you want to be: Do you want to stand out from the crowd, 
or would you be happier blending into a well-established corporate iden- 
tity? Starting a business from scratch allows you to be as unique as you 
want to be. Franchises, direct-selling opportunities, and business oppor- 
tunities allow you to closely affiliate with an established corporate iden- 
tity. This is a source of pride for some but stifling for others. 

i^ How much control you want: Different work options have dramatically 
different levels of control. A business you start from scratch may put 
you in full control, and buying a franchise may mean little control over 
how the business is marketed and run. Be sure you're aware of the level 
of control you want and that the business you choose provides it. 

*«* Your long-range goals: Is your goal to make lots of money? Meet inter- 
esting people? Work as little as you possibly can? Retire early? Whatever 
your long-range goals, be sure that the opportunity you select is compat- 
ible with and helps you achieve them. Check with other people who 
have invested in your prospective opportunity, and see where they are 
in their lives. Were they able to leave their careers behind? Are they now 
independent and able to have that little cabin on the lake that they 
always dreamed of? Were they able to retire early? What is the reality 
behind the sizzling sales pitch for your particular opportunity? 

Finding \lour Niche by Specializing 

People need to know what business you're in — there shouldn't be any ques- 
tion in their minds or yours. If you try to be everything to everybody, you 
end up pleasing precious few customers. The best way to avoid this is to find 
a business niche and specialize in it. An expert is worth a lot more to clients 
than someone without experience. Would you rather have your silk shirt 
cleaned by someone who has years of experience working with silk or by the 
local laundromat? Chances are you would be willing to pay more for someone 
who specializes in cleaning your delicate (and expensive) silk shirt. 


It's the same way in any business. People want to work with people who 
know what they're doing. Be one in a million, not one of a million. 

The specialist pyramid, shown in Figure 2-1, shows the relationship between 
expertise and the amount of money you can command. As your expertise 
increases, you make more money and make yourself easier to market. 

Chapter 2: Mirror, Mirror on the Wall, What's the Best Business of All? ^J3 

Figure 2-1: 




There are eight ways to find your niche by specializing: 

1. Assess and outline your current expertise. 

2. Identify your strengths and weaknesses. 

3. Build on your strengths, and fill in the gaps in your experience. 

4. Articulate a point of view (in writing) for how you work. 

5. Collect evidence to support your point of view. 

6. Review and begin documenting your experience. 

7. Identify the patterns suggested by your experience. 

8. Explain (in writing, to yourself) what you've discovered. 

[1 [l Part I: Beginning at the Beginning 

Chapter 3 

Hot Opportunities Now 
and for the Future 

In This Chapter 

Understanding demographic trends 

Considering the impact of globalization 

Looking into the future of security and health care services 

■ m ver the years Paul and Sarah have found that when it comes to hot new 
\r businesses, what's hot today is cold tomorrow. So in selecting busi- 
nesses to profile for their Best Home Businesses books, the most recent of 
which is The Best Home Businesses for People 50+, they rely on scouting long- 
range trends. That's what we'll do in this chapter. We will look down the 
decade and relate both what's warm now and growing hot, as well as what 
we think may become hot. Our journey is organized around ten trends. 

7. The Maturing Population 

Because two of your three authors are in the 50+ age group, we prefer calling 
the burgeoning number of people reaching 50+ the maturing rather than aging 
population. But whatever you call it, the population of the industrialized 
world is getting older. In the United States, by the year 2020, one in every six 
people will be over age 65, and nearly seven million people will be over 85 
years old. The number of Canadians aged 65 and over is predicted to grow to 
6.9 million by 2021. 

An older population means potential customers for many businesses that can 
be run from home. Bodywork and massage therapy, for example, will grow 
along with other, newer services designed to meet the needs of an older pop- 
ulation, such as daily money management and senior relocation services. 
Let's examine some specific needs of this population and the kinds of home 
businesses they will foster. 

[l %} Part I: Beginning at the Beginning 

Daily needs 

is* Daily money management. Although older adults are able to live inde- 
pendently longer, many need assistance with tasks such as making bank 
deposits; paying bills; balancing checkbooks; reconciling bank, credit 
card, and charge account statements; organizing taxes and other paper- 
work; and filing medical claims. This business has grown from the fact 
that adult children often no longer live in the same community as their 
parents, and even when some do, they're too busy to help manage their 
parents' day-to-day financial affairs. Resource: American Association of 
Daily Money Managers, Inc., (301) 593-5462, www . aadmm .com. 

i* In-home care. Many seniors need help with the activities of daily living 
(ADLs), such as cleaning, cooking, driving to medical appointments, 
grooming, laundry, medication reminders, organizing closets, and run- 
ning errands such as picking up prescriptions and especially shopping. 
In-home, nonmedical caregivers provide these services, as well as much- 
needed companionship. House cleaning is especially important, because 
many seniors lose their visual acuity and simply can't see dirt in kitchens 
and bathrooms that would appall them if they could. These services 
enable elders to continue to live in their own homes, avoiding placement 
in nursing homes. Also, because of the growing size of the senior market, 
research and development is creating new products and medical tech- 
nology that should enable more elders to live at home with the assis- 
tance of people who lend a helping hand and in the process help control 
health care costs. Training as a nurse's aid is helpful for this work. 
Resource: National Alliance for Caregiving, 

In-home health care is a separate service that is typically operated on a 
larger scale than can be done from home; however, smaller in-home 
health care providers in rural areas are sometimes home based. In-home 
health care is usually paid by Medicare or Medicaid, but sometimes fam- 
ilies pay for in-home health care directly. Resource: National Association 
for Home Care and Hospice, (202) 547-7424, www.nahc. org. 

is* Personal-chef services. Personal chefs bring the groceries and their 
own utensils and equipment to cook in their clients' kitchens. Typically, 
personal chefs who cook for seniors come in once every two weeks and 
package meals to store in the refrigerator or freezer for use until their 
next visit. Resource: United States Personal Chef Association, (800) 
995-2138, www. uspca .com. 

V Pet services. Seniors love their pets, and research has proved pets are 
healthy for them. For example, seniors with dogs go to the doctor less, 
have lower triglyceride and cholesterol levels, and engage in conversa- 
tion and social interaction. Thus, seniors are frequent customers for pet 
sitters and other pet services such as dog and cat training, mobile pet 
grooming, nonanesthetic dental cleaning, pet transportation, and 
pooper-scooper services. Resource: National Association of Professional 
Pet Sitters, (856) 439-0324, www . petsi tters . org. 

Chapter 3: Hot Opportunities Now and for the Future [l / 

Professional services 

V Geriatric care management. These professionals specialize in assessing 
the needs of seniors whose situations require special attention in order 
for them to continue to live independently. Geriatric care managers also 
coordinate needed services and negotiate their delivery with agencies. 
Because of certification requirements, being credentialed in gerontology, 
nursing, social work, or psychology is required in this field. 

u* Professional advice. Professionals of all kinds — including accountants, 
clergy, financial planners, insurance brokers, lawyers, independent 
nurse practitioners, real estate agents, and psychotherapists — are spe- 
cializing in working with elders. Professionals and others can become 
Certified Senior Advisors by the Society of Certified Senior Advisors, 
(303) 757-2323, www. soci ety-csa . com. 

Special services 

v* Relocation services. When life circumstances change due to health or 
finances, downsizing one's home is something seniors often do, trading 
a now too-large or hard-to-maintain home for a smaller one. But moving 
is both physically and emotionally daunting. This has given rise to relo- 
cation specialists, who handle everything from packing to unpacking 
and setting up the new living space to make its new resident(s) feel 
at home. Resource: National Association of Senior Move Managers, 

U* Retirement counseling. A recent Gallup survey found 54 percent of 
American adults do not have a long-term financial plan and that 74 per- 
cent of these do not expect to have enough money to retire. This means 
a lot of work for retirement counselors to do. Certification is possible 
through the College for Financial Planning (800-237-9990, 303-220-1200, 
www . f p . edu), which offers a Chartered Retirement Planning Counselor, 
and the International Foundation for Retirement Education (806-742- 
6100, www . i nf re .org) offers a Certified Retirement Counselor (CRC) 
designation to financial planners and individuals with human resource 
and finance work experience in corporations or government. 

U* Tour packaging. Travel is a high priority for the maturing population. 
When people approaching retirement age are asked what kind of travel 
they look forward to, travel that combines intellectual and physical stim- 
ulation scores high. So a home-business-based tour packaging business 
does more than make travel arrangements; it's also about fulfilling aspi- 
rations for adventure for both mind and body. Most tour operators find 
niches — novel and unique tours or subjects focused on food, art, his- 
tory, or other special interests, sometimes exotic, that require particular 
knowledge and expertise in order to create a satisfying tour. Unlike 

[1 Q Part I: Beginning at the Beginning 

travel agents, who are in an increasingly difficult field, tour packagers 
generally do not sell tickets to their customers; they either pay for the 
transportation such as renting a bus, which is included in the tour pack- 
age, or the customers make their own travel arrangements. The tour 
package consists of the itinerary, hotel accommodations, food, and 
guide services. Resource: United States Tour Operators Association 
(USTOA) has a client insurance program, (212) 599-6599, www . ustoa . com. 

Virtual Retirement Communities. This form of retirement community 
enables seniors to stay in their homes by providing them with access to 
needed services at preferred costs from reliable vendors. Beacon Hill 
Village in Boston is a prototype for this type of organization. It "con- 
tracts for household services (repair, cleaning, errands), transportation 
(to friends, airports, doctors), concierge services, meals and grocery 
shopping, and home health care." Residents pay less than $1,000 a year 
to belong. This developing addition to community services makes possi- 
ble two different business roles: organizing virtual communities and 
operating the resulting associations. Example: Beacon Hill Village, www . 
beaconhi 1 1 vi 1 1 age .org. 

2. Great Migration South and 
to Smaller Places 

Americans and Canadians are on the move — generally southward! In 
American Demographics, business futurist Stuart Bradford forecasts that as 
many as 50 million people may move to the South over the next 20 years. The 
migration south is being led by boomers surging past 50, but where the popu- 
lation and money are, work is too, so younger people and families are head- 
ing south as well. 

Geographical shifts are not limited to the South. Smaller cities such as 
Burlington, Vermont; Columbia, Missouri; Fargo, North Dakota; Iowa City, 
Iowa; Northampton, Massachusetts; and Rochester, Minnesota are growing, 
too, as people choose less stressful environments to live in. Also emerging 
are micropolitan areas with one or more towns at their core and at least 
10,000 but fewer than 50,000 people, surrounded by growing populations in 
adjacent counties. These core towns have names most people don't recog- 
nize: Edwards, Colorado; Rio Grand City, Texas; Daphne-Fairhope, Alabama; 
and Elko, Nevada. They draw people because the core towns have basic infra- 
structure, and the adjacent areas offer lower-cost real estate. 

New population growth creates many home-based business opportunities. 
A home-based service business that is pressed to make ends meet in a slow- 
growing area such as Cleveland, Detroit, Milwaukee, Philadelphia, or Toledo, 
after having relocated to a fast-growing area such as Phoenix, Atlanta, or Las 
Vegas, may have so much work, it finds itself turning customers away or 

Chapter 3: Hot Opportunities Now and for the Future [1 y 

raising its prices to screen out bargain hunters. In fact, a northern work ethic 
may be sought after by customers in places where "native boys" are known 
to work only when they "get round to it." 

What kinds of businesses will do best? Although geography no longer plays 
the dominating role for many businesses as it did when the mantra was loca- 
tion, location, location, local clienteles can be important in that they provide 
face-to-face interaction with colleagues and suppliers. Places with growing 
populations and expanding economies are most apt to provide both. So virtu- 
ally all the businesses described for the other nine trends will find fertile 
ground in growing areas. 

In addition, businesses that involve homes and real estate do well in growing 
areas, including things that can be done at or from home, such as 

W Cleaning services 

u* Drafting/design using CAD 

u* Handyman work 

*«" Home inspection 

«-" Insurance sales and independent adjusting 

f" Landscape and garden design and installation 

v* Real estate sales and specialties such as staging homes for sale and the 
video work needed for virtual tours that appear on Web sites 

v* Real estate appraisal 

u* Remodeling contracting 

But what if you live in a city or region that's losing population, and because of 
family or other reasons, you don't want to move? With population loss, busi- 
nesses that formerly were operated in storefronts and in offices retreat home, 
lowering their overhead. At the same time, acceptance of businesses located 
in homes rises, because this may be the only way of having goods and ser- 
vices available nearby. Would-be competitors may have followed the crowd 
and moved away, leaving you king or queen of the hill, though one that may 
continue to shrink in size. 

3. Universal Connectivity: the Electronic 

Universal connectivity has gone from dream to pricing plans. The appliances 
needed to connect to the world and to access virtually anything from virtu- 
ally anywhere keep decreasing in size. New software coming onto the market, 

y(/ Part I: Beginning at the Beginning 

combined with wireless transmission of electronic waves, will enable commu- 
nication over a broad range of frequencies, bandwidths, and transmission 
standards while maintaining a constant Internet connection even when trav- 
eling from state to state or nation to nation. 

The emerging fabric of wireless broadband connections, the Global Positioning 
System (GPS), and radio frequency identification tags (RFID) led Ed Zander, 
CEO of Motorola, to declare in USA Today, "The big change is going to be 
when the Internet follows you, not you trying to follow the Internet. It's just 
there. Your life is just affected the way it's affected today by the lights in a 
room." Or as Carly Fiorina of Hewlett-Packard told PC Magazine, "Every 
process ... is going to be digital, mobile, virtual, personal." 

What are the implications for home-based businesses? First, the self-employed, 
particularly consultants, will have the equivalent of a support staff for tasks 
such as making travel arrangements, presentations, and getting needed infor- 
mation delivered automatically wherever they are. This will lower overhead 
costs and equalize the playing field between the one-person company and 
larger companies. Second, for more people home will be anywhere or 
nowhere, making it possible to live and work in an RV or out of a suitcase, as 
well as respond to instant work opportunities, such as the demand for con- 
struction tradesmen, insurance adjusters, and others following a natural or 
manmade disaster. We'll be able to freely follow the markets for the kind of 
work we want to do and live in the variety of places we want to live. 

A business that has already emerged and that has continuing growth poten- 
tial is selling what you have, make, or acquire on the Web from this trend. If 
you have a product to market or are a collector of anything from toasters to 
toilet seats, you can make the world your market on the Internet as a Web 
merchant/auction trader. Ask anyone to name five businesses that have 
thrived beyond the dotcom meltdown, and eBay would come up high on 
everyone's list. Although it's the most popular trading site, eBay isn't the 
only auction site being used by collectors, merchants, liquidators, and hun- 
dreds of thousands of home-based sellers. Other sites include Bidville and 
Ubid and the auction sections of Amazon, Yahoo!, and 
Another way to be a Web merchant is to operate a virtual storefront of your 
own on a Web site or within a mall. Checkout www.aucti on-sellers-news. 
com for a free newsletter. 

4. Economic Globalization 

Do you remember Ross Perot in 1992 describing the "giant sucking sound" of 
manufacturing jobs exiting the United States? It's turned out that a lot more 
than factory jobs are leaving. A study by University of California at Berkeley 
estimates that 14 million U.S. service jobs are vulnerable to offshoring. Some 

Chapter 3: Hot Opportunities Now and for the Future J / 

economists view this relocation of work as positive. Whether this facet of 
economic globalization turns out to be good or bad for the economy as a 
whole, here are the significant ways it is affecting home-based businesses: 

v* First, some work that formerly went to home-based businesses, in fields 
ranging from medical billing and claims processing to programming, is 
now being done in countries like the Philippines, India, Russia, and 
Romania. Home businesses making products like baskets, ceramics, and 
quilts sometimes find their products underpriced by inexpensive 
imports sold by the bin in places like Wal-Mart and Target. This means 
the opportunities for craft-oriented home businesses lie with unique or 
personalized creations not available for less. See Trend 10, later in this 

*<* On sites such as el ance . com and guru . com, bidders from around the 
world are competing for all kinds of work — from Web design to writing. 
This means home-based businesses could have new competitors they 
didn't have in the '90s, but it also means we, too, have access to a world- 
wide market. It can be a quick route to obtaining one's first customers. 

u* Third, what some home-based businesses can charge for what they do 
has been dampened by offshoring and a worldwide market. Medical 
transcription is an example. The rate paid per line has dropped from an 
average of 18.5 cents in 1985 to 14 cents in 2004, while the cost of the 
technology needed to run such a business has gone up. Nevertheless, 
because of rising demand, medical transcription remains a viable home 


So in considering what's going to be a good business for you, determine as 
best you can whether what you will be doing is something that might be off- 
shored. Obviously, there's no danger of this if you're providing facials or 
being a handyman, particularly in communities not hard hit by job losses. 

If you're wondering whether offshoring will continue and whether there any 
bright signs on the horizon, the answer to both of these questions is quite 
probably yes. New technologies are coming along that will reduce or elimi- 
nate the advantages of offshoring. This makes watching for emerging tech- 
nologies a way to spot the home businesses of the future. 

For example, one revolutionary technology that could hold promise is mecha- 
tronics. What's that? Think replicators aboard the Star Trek "Enterprise." 
Mechatronics can be thought of as first-wave replicators, using ink-jet printing 
technology to build products that have movable parts and working circuitry. 
Cartridges filled with polymers and other materials will produce ready-to-use 
items of all kinds. 

Imagine having a mechatronic printer or two as the basis of a home-based 
business or enabling someone in a remote location to fabricate automotive 
parts; consumer electronics; and medical, household, and office items. This 

3^ ' >art '■ Beginning at the Beginning 

could be a technology that, by changing the nature of manufacturing, could 
return to domestic production items now produced abroad. If you're inter- 
ested in mechatronics, watch for developments from Cornell University, MIT, 
and UC Berkeley, as well as manufacturers moving forward with this emerging 

Another technology capable of doing tabletop manufacturing is called molec- 
ular manufacturing. It is based on advances in nanotechnology Organizations 
tracking this development are The Institute for Molecular Manufacturing, 

www. imm. org, and the Foresight Institute, www. foresi ght . org. 

5. Increasing Numbers of Self-Employed 

In his best-selling 1989 book, Age of Reason, Charles Handy first foretold the 
reorganization of corporations into what he called cloverleaf organizations 
functioning with three types of personnel: (1) a small core of employees, (2) 
outsourced contract workers and services when needed, and (3) strategic 
alliances with other corporations. Since then, we have witnessed this very 
phenomenon in how organizations are now being structured. 

A contingent workforce comprised of temporary workers and independent 
contractors has grown to an estimated one out of three workers. These con- 
tingent workers are not just assembly-line and administrative workers, 
they're also attorneys, doctors, and professors. Their numbers are growing at 
a galloping rate. Many in this growing contingent workforce are in the market 
for the services of other small businesses and self-employed individuals on 
both a cash and barter basis (see Chapter 12). 

Following are some businesses that can grow from increases in self- 

W Computer consultants. Most small and home-based businesses are 
dependent on technology, but they don't possess the skills or the incli- 
nation to deal with problems of installation; upgrading; compatibility; 
repairs; and being disabled by malware, spyware, viruses, and worms. 
They need computer consultants. They may call a computer consultant 
even when they're eligible for the manufacturer's technical support if, at 
that support, they can talk only to someone who is reading a script or 
who has difficulties with English. Toward the end of the decade, com- 
puter consultants may also be applying their problem-solving skills to 
robotic appliances. Resource: Independent Computer Consultants 
Association, (800) 774-4222, www. i cca .org. 

u* Interim or contract executives. One consequence of the imminent 
retirement of the baby boomer generation and the much smaller genera- 
tion that's replacing it is that corporations are willing to contract out for 

Chapter 3: Hot Opportunities Now and for the Future Oj 

top executive roles. Thousands of companies are seeking out interim, 
contract, or short-term executives from CEOs, CFOs, and CIOs to market- 
ing, purchasing, and other managerial roles. Sometimes these interim 
assignments are part-time, and sometimes full-time, but they are usually 
limited to from several months to several years. Resource: www .the 
phoenixl i nk .com. 

*«* Virtual assistants (VAs). Growing in lockstep with virtual organizations 
are the bundling of many office functions into a grab bag of roles for vir- 
tual assistants — who do executive assisting, secretarial work, meeting 
and travel planning, project managing, and coordinating logistics. Virtual 
assistants often specialize by working with a specific profession, occupa- 
tion, or industry, and of course, the tasks they provide are tailored to 
the needs of their clients. So for a virtual assistant working for a psychia- 
trist, managing the appointment schedule could be a key job, whereas 
for a startup company, the VA may be busy finding sources of insurance 
or outfitting an office on a minimum budget. Stacy Brice, one of the 
founders of the field, offers VA training at AssistU (www. 

6. LiVinq off the Grid 

Not a week and often not a day goes by in which someone doesn't write or 
say to us, I'd sure like to get off the grid. By that, they mean becoming inde- 
pendent of utilities such as electricity, water, gas or propane, usually in rural 
settings. Solar, wind, hydro, geothermal, and wireless are among the tech- 
nologies that are actually enabling increasing numbers of people to live inde- 
pendent of pipes and wires and rising utility bills. 

The increasing cost of energy plus improving technology, such as plastic 
instead of silicon solar panels, is stimulating what will become a new way of 
life for perhaps hundreds of thousands of people. An estimated 30,000 to 
40,000 people are already living off the grid in the United States today. Although 
solar power is not the only technology enabling people to live virtually 
anywhere they choose, its growth may be an indicator of what's to come. 
Revenue spent on solar power equipment and installation is forecast to rise 
from under $5 billion in 2003 to over $30 billion in 2013. 

One type of home-based business that will grow from this trend is alternative 
energy installation. Homes of people wanting to live off the grid and home- 
owners who want backup energy available on standby constitute the largest 
part of the customer base for alternative energy installers. Other customers 
for alternative energy equipment and installation are RV and boat owners, 
and commercial entities such as radio stations, bed-and-breakfast inns, and 
large resorts, all wanting backup power. This is a business that requires 
mechanical abilities and the willingness to climb roofs and towers. Resource: 
Solar Energy Installation Businesses, http : //energy . sourcegui des .com. 

yu Part I: Beginning at the Beginning 

7. Rising Physical and Property Security 

How many of us have transitioned from breathing a sigh of relief at security 
check-ins, to getting irritation at the lines and hassle, to accepting it as part 
of everyday reality? This is reflected in the finding that three out of four 
adults believe it likely that the United States will suffer more major terrorist 

The challenges of both protecting ourselves and our assets from terrorists, 
crooks, and exploiters of computer vulnerabilities while maintaining an open 
society have created pressing demands for a variety of security needs. The 
result is industries, such as data recovery, that require special training; other 
industries involve adapting one's existing experience and know-how to new 
niches in the security field. Specializing in this field is important because it 
enables a home-based businessperson to more easily identify, reach, and gain 
the respect of clients, be they accountants, architects, attorneys, or any 
other industry needing security services. Here are some existing specialties: 

u* Security consulting. Some security consultants sell products from 
which they earn commissions; others provide expertise and are paid by 
the hour or on a per-project basis. They write plans and design and 
install systems. Areas of specialization include 

• Customer theft and product piracy 

• Electronic security systems 

• Employee theft 

• Intangibles like client lists and proprietary technology 

• Real estate and tangible property 

W Site consulting. Security is an issue for virtually every building and 
office, from high-tech industrial complexes to distribution centers, retail 
stores, self-storage facilities, housing developments, hotels, resorts, 
casinos, parking lots, and hospitals. Site consultants help businesses 
and institutions address security concerns about their facilities. They 
evaluate the physical design of buildings and spaces. They determine 
what security problems a sites poses and recommend countermeasures, 
from guards to electronic security with cameras and electric lights, or a 
combination of such methods and policies. 

u* Systems design. Security system designers prevent security problems 
before they begin by developing specifications and providing architec- 
tural or engineering support during the design phase of a security con- 
sulting project. Systems designers may also develop new electronic 
security tools to be used at specific locations. 

Chapter 3: Hot Opportunities Now and for the Future J J 

is* Forensic consulting. Forensic security consultants step in after security 
problems have already occurred. They serve as expert witnesses in 
trials in which security breaches are at issue, such as those involving 
fires, thefts, break-ins, and so on. Forensic consultants may focus on any 
of the security specialties. 

Resource: ASIS International is an association that provides certification. 
703-519-6200, www . asi sonl i ne . org. 

8. Education far \louth and Adults 

An increasingly skilled workforce is needed to staff a 21st-century civilization. 
Pardon My Planet made this point humorously in a recent cartoon. A young 
boy says to his father, "Dad, you really should help me with my homework 
while you still can. Next year I enter the 4th grade." Children today must 
learn more far sooner than their parents did when they were growing up. 

Yet despite the United States spending more on education per student than 
any country in the world, American students score below students in other 
advanced economies in every way that educational achievement is mea- 
sured. High school graduates are less prepared for college, 28 percent of 
freshmen are enrolled in remedial math or English, and fewer than half of 
freshmen entering college graduate with a degree after four years. 

Yet a healthy information-age economy requires workers who can lead and 
meet the demands of fast-changing workplaces. Many dads and moms who 
see that their kids need help if they are to pass demanding courses and tests 
and to succeed in a competitive job market are creating a growing need for a 
business that has traditionally been done from or at home. 

Although for years, parents vitally interested in their children doing well have 
provided the impetus for tutoring, the emphasis on testing is creating addi- 
tional reasons for parents to hire tutors. The pressure on children is 
described as horrendous. Tutors may be hired by parents or obtain funding 
under the No Child Left Behind Act. Even in Canada, whose students score 
markedly ahead of American students, tutoring in English as a second lan- 
guage and mathematics is not uncommon. In addition to academic tutoring of 
youth, tutors also work with adults, teaching carpentry; plumbing; and sport 
and hobbyist skills such as tennis, golf, and dancing. Resource: National 
Tutoring Association, (866) 311-6630, www. nta tutor, org. 

Adults are feeling challenged, too. Only one in five adult Americans has the 
work skills or education to be competitive in the global economy, according 
to MIT economist Lester Thurow. The speed of technological change is 
increasing, resulting in new products and information, as well as training in 

J\) Part I: Beginning at the Beginning 

how to use and service them. Some people maintain — and we agree — that 
remaining economically viable requires a lifelong learning process. These 
challenges provide the basis of several other education-oriented types of 
home-based businesses: 

**" Continuing education and training. Although continuing education may 
not be a full-time home-based business in itself, teaching continuing edu- 
cation classes offered by college and university extension programs and 
adult learning companies such as the Learning Annex are a way to 
attract clients to any number of businesses, from consulting and finan- 
cial counseling to personal chefing, photography, and home improve- 
ment. Many people decide what they learn to do themselves from a class 
is more difficult than they anticipated and are sufficiently impressed 
with the instructor to hire him or her to carry out the task they were 
hoping to learn how to do. Training is increasingly becoming an Internet- 
based phenomenon, usually called e-learning, which provides another 
role for professional trainers, as well as for people who design e-learning 
courseware and experiences. Resource: American Society for Training 
and Development, www.astd .org. 

is* Technical writing. Changing technology always requires the creation of 
materials to introduce it to its probable consumers, sell it, explain how 
to use it, service it, assemble it, install it, and so on. The pace of innova- 
tion has been accelerating for over a hundred years, and there's every 
reason to believe it will continue as innovation shifts abroad, particu- 
larly to China, which is investing heavily in science and technology. 
Technical writers also will find work making technologies created 
abroad understandable and usable by English-speaking sales engineers 
and technicians. Resource: Society for Technical Communication, (703) 
522-4114, www . stc . org. 

9. Health Care: Up in Demand and Cast 

Spending on health care increases as people grow older, contributing in part 
to U.S. health-care costs soaring — by 59 percent since 2000. That's five times 
the increases in both wages and inflation. One consequence of this is that 
heath-care providers work hard to lower their costs, sometimes by outsourc- 
ing back-office services to small independent services, specifically for med- 
ical coding, billing, and transcription. 

At the same time, the high price of traditional health care and the inability to 
simply get services from traditional health-care providers is spurring the 
growth of alternative medicine both for prevention and treatment. More than 
one in three Americans use some kind of alternative or complementary 
health care, such as natural products, breathing exercises, chiropractic care, 
yoga, massage, and diet-based therapies. Spending on organic foods, for 
example, is growing by 20 percent a year. 

Chapter 3: Hot Opportunities Now and for the Future J / 

Home businesses in the health care field that can do well include the 

*«" Fitness trainer/coach. Fitness training was already growing before seri- 
ous efforts to make war on obesity began. Trainers work both from 
home and at home, depending on the trainer and the needs of the 
clients. Trainers who work from home work with clients in gyms or at 
their clients' homes. Trainers who work at home have their clients come 
to their homes or provide coaching over the phone or Internet. Because 
the best advertising to potential clients is the trainer's own health and 
appearance, coaches and trainers need to be physically fit. Yoga, which 
is being used for relieving stress-related conditions and fitness, is 
increasingly popular and can be done at studios or by going to clients' 
homes. Resources: Aerobic and Fitness Association of America (AFAA), 
(800) 446-2322, www. af a a .com; and The Yoga Site, www. yoga si te .com, 
877-964-2748 or 508-896-4456. 

*«* Medical billing service. Though too frequently in the news because of 
FTC actions closing down medical billing business opportunity vendors, 
medical billing is a viable home business. Medical billing involves the 
ability to handle detail, because accuracy is critical. Medical billers pre- 
pare insurance claims using medical-billing software and then send them 
electronically to third-party payers for evaluation and payment. Health- 
care providers other than doctors also use medical billers, including chi- 
ropractors, ambulance services, dentists, home-nursing services, and 
massage therapists. Resources: Electronic Medical Billing Network of 
America, Inc., (908) 470-4100, www .medi cal bi 1 1 i ngnetwork .com and 
National Electronic Billers Alliance (NEBA), (650) 359-4419, www . neba 
zone. com. 

l** Medical coding. Between the treatment of a patient and the submission 
of a bill to a third-party payer, medical services provided to the patient 
must be translated into a standardized code. These codes are also used 
in record keeping and health-care statistical measurement by hospitals 
and various government agencies. Accuracy is imperative, as miscoding 
results in the health-care provider being fined. People with backgrounds 
in medical fields such as nursing are best suited to enter this growing 
field. Resource: American Academy of Professional Coders provides edu- 
cation and certification, (801) 626-2633, www . aapc . com. 

is* Medical transcription. Medical transcriptionists produce reports and 
documents from dictation that doctors, nurses, and other medical per- 
sonnel have made regarding their patients. As medical personnel employ 
voice-recognition technologies, the transcriptionists' work becomes 
editing the documents on-screen. But they are still needed in this $50 bil- 
lion industry based on the need for records on continuing patient care 
and to get paid for services from third-party providers, among other 
uses. Resource: American Association for Medical Transcription offers 
free information about the profession, (800) 982-2182, (209) 527-9620, 
www.aamt . org. 

jO Part I: Beginning at the Beginning 

*«* Growing organic food. A growing appetite for healthy foods and the 
desire to avoid produce grown with the use of pesticides or irradiation 
is propelling market growth for organic growers. Much locally grown 
produce, fresh herbs, and edible flowers found at farmer's markets, 
roadside stands, and gourmet restaurants are grown by small growers 
who practice what is variously called vest pocket or micro farming. 
People living in warmer climates have the advantage of being able to 
grow several crops a year. Resource: ATTRA National Sustainable 
Agriculture Information Service, (800) 346-9140, www.attra .org. 

Experts estimate that 30 percent of doctors' offices and other medical 
providers contract out their billing. Unhappily, some larger medical facilities 
are outsourcing their billing outside the United States. So the home-based 
medical biller needs to think of her or his market as smaller practices and 
medical providers that seek payment for services to their patients from third 
parties. These include commercial ambulance services, chiropractors, den- 
tists, optometrists, home-nursing services, nurse practitioners, physical ther- 
apists, physician assistants, podiatrists, psychologists and other counselors, 
respiratory therapists, and speech therapists, among others. 

The smaller office often has difficulty keeping and training an employee with 
sufficient skills to do their billing accurately. Thus, independent medical 
billers are more expert than office staff responsible for doing other office 
functions. An outside medical biller should be able to increase the revenue of 
their clients while reducing overhead. 

To be a medical biller, what you must know has increased, however, in part 
because of security and privacy standards for handling medical data pro- 
vided for in the Health Insurance Portability and Accountability Act of 1996 
(HIPAA). Because these standards change, you must keep continually up to 


You can acquire more background on new developments at the Electronic 
Medical Billing Network of America site at www.medi calbillingnetwork. 
com and the National Electronic Billers Alliance site at www. nebazone .com. 

Are medical billing businesses still hot? 

Q: I am taking an at-home study course on med- 
ical billing. You've indicated that this is a good 
business. Is this still the case? 

A: We've included medical billing as a "best 
business" since the first edition of our book 

Best Home Businesses, despite the harm done 
to this field by the dozens if not hundreds of 
business opportunities that overpromised what 
they could deliver in preparing people to do 
medical billing. 

Chapter 3: Hot Opportunities Now and for the Future Jy 

10. Luxuries as Necessities 

What's been called the democratization of luxury is evidenced by the fact that 
U.S. consumer spending on luxury items has grown four times faster than 
total spending. In 2003, luxury purchases accounted for about 20 percent of 
the $2.35 trillion American retail sales market, including many items and ser- 
vices that home-based businesses can make, sell, or offer as personalized 
and premium services. Although Canadians are more conservative in their 
expenditures, they also are spending more on things like clothing, personal- 
care products, and entertainment. 

By buying basic goods at Costco, Home Depot, Lowe's, and Wal-Mart, shop- 
pers are saving $100 billon a year, finds a Harvard study. At the same time, 
marketing analysts find spending on luxury goods and services is growing 
particularly among the 47 million households earning more than $50,000 a 
year. Surveys find that many people shop for bargains, clip coupons, and 
wait for sales on household items in order to splurge on luxuries and special 
treats for themselves or their loved ones. 

What's motivating this spending? First, experts say that pampering oneself 
with luxuries is a way of compensating for hard work, long hours, and not 
having enough time for loved ones. In short, many people turn to luxury 
purchases to help themselves feel better. Other people seek new experi- 
ences, which translates into opportunities for tour operators offering exotic 
vacations and personal chefs who will introduce them to new culinary 

For some customers, the important things about a luxury are superior quality 
and that it lasts a long time. These customers welcome information about a 
product, including what it's made of and how. Others buy luxuries as a 
reward for achievement; still others want things that make them feel good, 
both with their senses and emotionally. This creates a growing market for 
handmade and personalized items that can be made by skilled home-based 
artists and crafters. 


For most luxury products, quality is more important than brand, and thus, 
what a home-based business produces has a uniqueness cache; nevertheless, 
establishing one's own brand, such as Amy's, Barbara's, or Bill's, can also be 
the route for some to growing a much larger business (Table 3-1). 


Part I: Beginning at the Beginning 

Table 3-1 

Luxury Products and Services Marketable 
by a Home-Based Business 



Personal care 


Facials and beauty treatments 




Travel experiences 

Fragrances using essential 

Handmade soaps, beauty 


Cake baking, decorating 

Personal-chef services 

Herbs, foods, flowers 

For the home 


House cleaning 


Pet sitting, grooming, walking, 


Handmade furniture 

Home decor 


Window treatments 

One more thing. We've identified the trends we think will most affect home- 
based businesses and named some of the businesses we believe have the 
best potential to prosper. But one lesson from the past is that no one has a 
foolproof crystal ball. New opportunities from new technologies will continue 
to arise, some technologies that showed promise won't gain market accep- 
tance, and established businesses will fade or require such retooling that 
they wouldn't be recognized by the same name. That's the process, the 
opportunity, and the price of an economy and an era in which change is 
normal and in which some dreams are put to rest as new ones arise. 

Chapter 3: Hot Opportunities Now and for the Future 



How can I tell what work I should do? 

Q: I've always heard people say, "Do what you 
love." That can be discouraging if you don't 
have any clue as to what you'd love to do. How 
does someone like me proceed? 

A: We understand there's more to the choices 
people make than doing what they love. In fact, 
a study by Roper Starch Worldwide found 
that 29 percent of American adults choose work 
that pays well, even if they hate the work. 
Personally, we learned from interviewing hun- 
dreds of people while writing Finding Your 
Perfect Work that many don't choose a busi- 
ness based on work they love. We've identified 
four productive "paths" people take: 

v* Drawing on a talent, whether natural or 

v* Building on a passion 

j-" Following a sense of mission, which often 
grows out of a desire to right a wrong 

<-" Capitalizing on an asset, such as equip- 
ment, contacts, or specialized training. 

At the same time, we strongly advise against 
doing something you dislike. Although some 
people may be able to sustain a job they dislike 
due to the structure an employer provides, 
entrepreneurs lacking passion typically also 
lack motivation. Also, those who force them- 
selves to do something chronically unreward- 
ing may make themselves ill. Thus, you should 
score your business idea at least 7 on a "like- 
ability" scale of 1 to 10. 

If you still can't think of potential businesses, 
perhaps you haven't dug deep enough. We love 
the story of a woman in Los Angeles who liked 
watching TV and going to parties. She stitched 
together a business matchmaking celebrities 
with charitable events and good causes. Now 
she gets to watch TV to see who's "in" and then 
goto the parties she's helped line up celebrities 
for. You, too, may find an unlikely combination of 
things you like (if not love) and turn them into 
both an enjoyable and profitable livelihood. 

Where \lou Can Learn about More 
Home Businesses 

The following types of businesses are described in greater depth in other 
books by Paul and Sarah Edwards: 

u* Found in "Best Home Businesses for the 21st Century" 
u* Found in "Best Home Businesses for People 50+" 
u* Found in both books 


Part I: Beginning at the Beginning 

Abstracting service 

Advertising agency 

Alternative energy installer 



Association management service 


Background checking 

Basket-making and chair-caning 

Bed-and-breakfast inn 

Bodywork and massage therapy 

Bookkeeping service and bill- 
paying service 

Business broker 

Business network organizer 

Business-plan writer 

Cake-baking and decorating 




Caterer and personal chef 



Cleaning services 


Computer consultant 

Computer programmer 

Computer repair 

Consulting to businesses and 
other organizations 


Daily money manager 

Desktop publishing 

Desktop video 

Direct seller/network marketer 

Disc jockey service 
Dog walking 
Doula service 

Drafter/Computer-Aided Design 

Editorial services: editing, 
proofreading, indexing 

Elder services: elder relocation 
service and other elder 

Environmental assessor 

Errand services 

Estate sales services 

Executive search 

Expert referral service/ 

Chapter 3: Hot Opportunities Now and for the Future Oj 

Export agent 


Family child-care provider 

Feng shui consultant 

Financial planner 

Fitness trainer 


Gardening, growing flowers, 
food and herbs 

Gardening service 

Gift-basket business 



Hauling service 

Home inspector 

Image consultant and personal 
shopper, clothing sales 

Indoor environmental tester 

Information professional/ 

In-home health care 

Interim executive 

Interior designer/decorator 

Leak-detection service 

Mail order/Web merchant and 
antique and collectibles reseller 

Mailing list service 

Make-up artist 

Manufacturer's rep/independent 
sales representative 


Medical billing 

Medical claims assistance 
professional and hospital bill 

Medical coding 

Medical transcription service 

Meeting and event planning 


Mobile notary 

Mobile screen repair 

Personal chef service 

Mystery shopping 

New media/multimedia 

Newsletter publishing 

Personal historian and 

Pet groomer 

Pet party giving 

Pet sitting and other services for 
animal lovers 

Pet taxi 

\)[l Part I: Beginning at the Beginning 

Pet training 

Plant caregiver 

Private-practice consultant 

Professional investigator and 
security consultant 

Professional organizer 

Proposal and grant writer 

Public-relations specialist 


Real estate appraiser and per- 
sonal property appraiser 

Red-tape expediter/complaint 

Referral service 

Relocation expert 

Remodeling contractor 

Repair services 

Restoration services 

Resume-writing service 

Reunion planner 

Rubber-stamp business 


Secretarial and office-support 


Sign maker 


Tax preparation service 

Technical writer 

Tour operator 

Training specialist 

Transcript-digesting service 


Travel agent/outside salesperson 

Travel consultant 

Travel writer 

Tutoring: computer tutoring/ 
training, scholastic tutoring 

Virtual assistant 

Web site designer 

Web merchant and auction 


Wedding consultant and 

Writing coach and writer 

Chapter 4 

Marketing 101: Getting Customers 

In This Chapter 

Identifying your best customers 

Assessing your customers' needs 

Selecting the best marketing methods for your business 

Getting started with a Web site and e-commerce 

Developing a marketing plan 

\J ou've worked hard to start your home-based business and get it going. 
&~ You've set aside some space in which to operate, and you've picked up a 
business license. You've purchased and stocked products to sell, or you've 
prepared yourself to deliver first-rate services to what you hope will be an 
eager throng of potential clients and customers. But before you can start 
enjoying the fruits of all your hard work, there's one thing you've got to do: 
You've got to convince someone to buy your products and services. You 
see, the greatest business idea in the world — the greatest products and 
services — are essentially worthless if no one is willing to pay you for them. 
For your business to be successful, you have to get good at marketing your 
products and services so that your prospective customers and clients hear 
about you and are encouraged to buy from you. 

In this chapter, we help you identify your best customers and assess their 
needs. We take a look at different marketing methods — including referrals, 
one of the most effective marketing tools — and help you create a meaningful 
marketing plan. We also check in on the latest information about starting 
your own Web site for e-commerce. 

Identifying \lour Best Customers 

Here's a secret that may make a very big difference in the amount of money 
you stand to earn from your home-based business: Some of your potential 
customers are better than others. That is, some (the ones who are willing to 


Part I: Beginning at the Beginning 

pay top dollar for your products or services with little intervention on your 
part) will earn you a lot of money, and some (the ones who nickel-and-dime 
you to death, complaining all the way) will actually lose you money. Because 
potential customers come in all sizes, shapes, and spending profiles — and 
because customers don't come with their profiles stapled to their heads — 
your very difficult job is to first figure out which ones are the most likely to 
become your best customers and then to figure out how to attract and reach 
them. Because your time and marketing dollars aren't unlimited, the best use 
of your money is to target them to specific people — the people most likely 
to buy your products and services. Instead of running expensive radio or 
newspaper advertisements day after day, hoping to get the attention of the 
customers you seek, you may find that targeted advertising in a specific mag- 
azine or Web site delivers a much greater payoff. 

What does your ideal customer look like? Here are a few questions to ask as 
you create a picture. (Don't worry if you can't answer all of the questions 
right now — just give it your best shot.) 

i** Who do you think your best customers will be? 

v* Are they individuals or businesses? 

*<* If they're individuals, what do they and don't they like? 

v* What are their needs and problems? 

v* How will those needs and problems be best addressed? 

f" What's most important to your best customers? 

t-" What's least important to them? 

U* How will you provide more of the former and less of the latter? 

Based on these questions, develop a written description of your best cus- 
tomers, and have some of your customers look it over to validate it or to 
make corrections. Here is a sample description of the ideal customer for a 
pet-sitting service: 

My ideal customer is a single, working adult with one or more pets, including 
dogs, cats, or birds, that require daily care and attention. My ideal customer 
often travels, has sufficient income ($30,000 or more per year) to afford to 
hire a pet sitter, and prefers to keep his or her pet in its home environment 
rather than in a kennel or other offsite care situation. My ideal customer 
loves his or her pets and wants them to have the best care possible. 

The idea is to understand your best potential clients and customers inside 
out — to know what makes them tick and what motivates them. By knowing 
this, you can easily figure out which marketing approaches (direct mail, Web 
site, Yellow Pages, search engine listings, display advertisement, and so 
forth) has the highest probability of not only reaching your best customers, 
but also inducing them to want to find out more about what you've got to 

Chapter 4: Marketing 101: Getting Customers %} / 


Promoting a new business 

Q: My sister-in-law and I have a home business 
togetherthat offers complete medical billing for 
physicians. Our primary way of marketing is to 
visit physicians personally and present infor- 
mation on what we have to offer. Do you have 
any other suggestions on how to promote new 
business without spending too much? 

A: Our interviews with owners of successful 
medical billing services for The Best Home 
Businesses for the 21st Century and again for 
The Best Home Businesses for People 50+ 
confirm that what you're doing now continues 
to be the best way to get started in this field. 
Most startups begin by knocking on doors or 
making marketing calls by phone. To make get- 
ting through to doctors easier, we suggest 
warming up your sales contacts by mailing out 
brochures and letters and then following up 
with a personal contact for an appointment. 

w Talk with your own doctors and other 
health-care providers whom you know per- 
sonally, and ask for referrals. 

w Collaborate with pharmaceutical sales- 
people, who regularly see doctors in their 

private offices. (Expect to pay a commission 
to reps who introduce you.) 

*<" Don't limit your marketing contacts to med- 
ical doctors. You can also provide billing 
services to a wide range of other health- 
care practitioners, such as acupunturists, 
dentists, chiropractors, commercial ambu- 
lance services, dentists, home-nursing 
services, massage therapists, nurse prac- 
titioners, occupational therapists, optom- 
etrists, physical therapists, physician assis- 
tants, podiatrists, psychologists and other 
counselors, respiratory therapists, and 
speech therapists. 

*<" Contact local professional societies about 
offering discounts to their members. 

After making contacts, follow up by phone to 
find out if you can provide additional informa- 
tion. Then keep your services top of mind (that 
is, in their minds) by sending periodic reminders 
in the form of timely tips and other useful infor- 
mation on postcards, flyers, or newsletters that 
you can send via mail, e-mail, or fax. 

offer. (Check out the "Marketing: Different Roads to Meeting Your Goals" 
section later in this chapter for ideas on ways to market your products and 

Tapping Into \lour Customers' Needs 

Which do you think is the better approach — creating a product or service 
that you're not sure anyone will want to buy and then trying to sell it, or first 
finding out what people want to buy and then creating a product or service 
that responds to that? Here's a hint: If you build a business around a product 
or service that you're not sure will sell, you're taking a very big risk. 


Part I: Beginning at the Beginning 


Creating a product or service in a vacuum, without the input of your clients 
or customers, is a recipe for disaster. You're designing a product or service 
that your prospects may neither need nor like, which means that you have to 
market much harder — or offer lots of incentives — to get your clients or 
customers to buy your products. Even then, they still may not buy. 

Finding a need and filling it is one of the most basic marketing strategies. Your 
first step in marketing, therefore, begins before your product or service is 
available to the public, when you're designing and creating it. By tapping into 
your customers' needs early in the process, you not only build a product or 
service that your prospects truly want and need, but also, your marketing 
efforts take far less personal energy, time, and money to implement. 

The WPWPF principle 


Many home-based business owners are in love with the products and ser- 
vices that they sell, as well they should be. They are their own best cheer- 
leaders, creating infectious excitement whenever they have the opportunity 
to talk to someone about their business or their products or services. The 
problem is that some home-based business owners fall so deeply in love with 
their products and services that they fail to notice that their prospective 
clients and customers aren't equally in love. They may not even be in like. 
And when this happens, a great idea remains only a great idea — not a great 
product or service. 

Paul and Sarah have developed a test for home-based business owners who 
love their products and services. It's called the WPWPF (what people will pay 
for) principle. Your products and services are only as good as what people 
are willing to pay for them — no matter how beautiful, clever, or well thought 
out they may be, if your clients and customers don't want them, they aren't 
worth even a fraction of the time and money that you invested to create 
them, and you really don't have a business. 

So what's the solution? How can you be sure that the products and services 
that you've been dreaming about delivering to your clients and customers 
are the ones that they truly want? It's actually quite simple: Ask them. That's 
all it takes. Here are a few simple steps for defining your target market and 
then asking the people in that market which products and services they 
really want and need (and will therefore be willing to buy): 

1. Decide which market you're going to target. 

Who, potentially, are your best customers — the people in the market 
you want to target? Do you want to sell your products and services to 
busy businesspeople, to retirees who spend their winters in Florida or 
Arizona, to preschool children, or to people who like to go on extended 

Chapter 4: Marketing 101: Getting Customers ^ 

vacations to exotic lands? Whichever product or service you hope to 
create, first decide who you're going to try to sell it to. All of the steps 
that follow depend on this one. 

2. Ask the members of your target market which products or services 
they want and need. 

You can do this in person, over the telephone, via written surveys sent 
through the mail, or through your Web site. The key is to collect as 
much data about the wants and needs of your target market as you 
can — the more data, the better. 

3. Use the results of your survey when designing your products and 

Using that great data from surveying your potential customers and 
clients, determine the design of the products and services you offer. 
Be sure that you address — and at least consider — every feature men- 
tioned as important by the people you surveyed. Some may not make 
financial sense, but others may be essential to include, whatever the 
cost. Believe us: Not only do you end up with better products and ser- 
vices, but you also sell a lot more of them, because they match the 
wants and needs of your customers and clients. 

4. Test the market. 

After your products and services are available — but before you roll 
them out to the public at large — test them out on a few selected people, 
businesses, or not-for-profit entities. What's their reaction? Are they sat- 
isfied with the results? Do your selected customers have suggestions for 
improvements or changes? What about price? Are your products and 
services priced realistically? Will your potential clients be willing to pay 
what you ask? Incorporate the feedback you get by tweaking your prod- 
uct or service or the prices you plan to charge. 

5. Market, market, market. 

By going through the preceding four steps, you can be reasonably 
assured that you have a product on your hands that you can not only 
sell, but that you also can sell a lot of. Now get ready for the ride of your 

^jjMNG^ Never bring out a product before you find out for sure that your target 

market really wants it enough to pay for it. Doing so may mean wasting far 
too much time and money — delaying your ability to create a positive cash 
flow while creating negative public opinion about your company. Better to 
wait a few months to fully explore your customer needs and wants than to 
rush through a great idea that ends up going nowhere. 

/(/ Part I: Beginning at the Beginning 

Carrtnq out a niche 

In most economies around the world, competition is a good thing. More com- 
petition is better for consumers, causing companies to push technology to 
the limits while reducing prices to gain advantage over other competitors. 
But although competition is almost always a certain win for consumers, it 
can mean big problems for the businesses caught up in it — especially small 
and home-based businesses. 

Why? Because small and home-based businesses are often thinly capitalized; 
in other words, there is not a lot of cash to spare, and so your marketing dol- 
lars as well as your time need to be aimed well. 

To avoid the problems that come with competition, carve out your own niche 
by providing your clients and customers with unique products and services 
that they can obtain nowhere else. 

Here are a number of tips for carving out a niche of your own: 

u* Offer a product or service that no one else offers. Do you remember 
the Pet Rock? If that little item is before your time, the Pet Rock — 
created by salesman Gary Dahl in 1975 — was a regular, everyday rock 
placed in a small cardboard box with a witty instruction manual entitled 
the Pet Rock Training Manual. After appearing on The Tonight Show, not 
once but twice, Dahl sold more than one million Pet Rocks at a price 
of $3.95 each. Dahl's creation — definitely a product that no one else 
offered — took the nation by storm and made its inventor rich many 
times over. 

«-** Specialize in only one business area or industry. You can't be every- 
thing to everybody, and if you want to be successful, you shouldn't even 
try. Instead of spreading yourself too thin with too many unrelated prod- 
ucts and services, focus on the one or two kinds of products or services 
that you do best. Peter figured this out a number of years ago when he 
decided to specialize in writing business books. Before then, in addition 
to writing business books, he had ghostwritten a book on how to pick up 
men through the personal ads (written from a woman's perspective!) 
and completely rewritten a book on dieting and nutrition. 

*«* Serve an unserved market. Believe it or not, not every market has yet 
been tapped by companies eager to sell their products. If you take the 
time to identify these markets and serve them, you can carve out a 
niche that others will be hard pressed to match. Chances are you'll find 
yourself with little or no competition for months or even years. 

When you carve out a niche in the market, you're doing nothing more than 
getting in touch with your potential clients and providing them with exactly 
the products and services that they want and need. And when you offer that 
market something that they really want and need, marketing your product 
will be easier than you ever imagined. 

Chapter 4: Marketing 101: Getting Customers / / 

Marketing: different Roads 
to Meeting \lour Goats 


The topic of marketing covers an incredibly broad spectrum of activities, 
all with one final goal in mind: to spur clients and customers to buy your 
products and services. When you start your home-based business, market- 
ing should take up most of your schedule. After all, your business isn't going 
to get very far down the road until you start selling your products and gener- 
ating the money that you'll need to give it life (and to pay yourself for all 

Growing a repair business 

Q: Is my business doomed? I do carpentry and 
household repairs, and although I have some 
business, it's just not enough. I don't have any 
money left to do the kind of advertising I know I 
should do. I'm not much of a salesman. Is there 

A: Yes, there's hope. Many people don't have 
much sales and marketing experience before 
starting their first home business and can feel 
quite overwhelmed by the relentless chore of 
getting business. Surveys tell us that getting 
business remains the number-one concern of 
small and home-based business owners year 
after year. 

Advertising is expensive because, to be effec- 
tive, itmustappear again and again in publica- 
tions where your targeted customers are 
looking when they need your services. In a busi- 
ness like yours, if you can afford to, we advise 
getting an enhanced Yellow Pages listing and 
localized listings on Yahoo! Get Local and 
SuperPages. And (for free) you can list on the 
Craigslistfor your city at www. era i gsl ist . 
org. In addition, you can actively market your- 
self in several low-cost ways: 

(*" Build a list of all of the people who have 
regular interaction with potential cus- 
tomers who want and need services like 
yours right now — not "someday." For 

example, real estate agents who have just 

sold new homes or who have clients trying 
to sell a home but needing to make improve- 
ments to get their price may fill the bill. 
Or how about home inspectors who have 
discovered problems in the homes they 
inspect? Contact these people by phone 
or in person, and let them know about you 
and your service. You aren't selling when 
you contact them; you're just getting 
acquainted and making sure they know 
how to reach you. 

Put these people's names into a database, 
and send them something monthly. 

Consider, for example, a tips newsletter, a 
postcard about a special offer, or a news 
clipping related to home improvement. 

Offer mini-workshops or seminars at hard- 
ware stores on do-it-yourself home im- 
provements. You may be surprised at how 
many people realize they need help after 
hearing about what they "can" do them- 
selves — especially if your mini-workshops 
or seminars are free. 

Arrange to leave a specially produced 
booklet or newsletter at hardware stores. 

If you're not already familiar with the soft- 
ware necessary to produce a professional- 
looking booklet or newsletter, consider 
hiring a desktop-publishing professional to 
do it for you. 

7 £ P art ' : Beginning at the Beginning 

Four approaches to marketing 

When marketing your products and services, an 
almost unlimited number of approaches are 
available. Each can be grouped within the fol- 
lowing four categories: 

u* Personal contact: Whether knocking on 
your prospective customer's door to pitch 
your product's advantages face to face, 
cold-calling on the phone, or buttonholing 
an acquaintance at your local grocery 
store, when you market your products 
directly to your customers one-on-one, 
you've made personal contact. If you have a 
great personality (always a plus when 
you're trying to sell something), if your prod- 
uct is complex, or if your product is best 
demonstrated live and in person (like that 
incredible kitchen knife that slices tomatoes 
and 3-inch-thick steel bars with ease), per- 
sonal contact is definitely the way to go. 

v* Through others: Although you can person- 
ally sell only a finite amount of products or 
services — after all, you only have 24 hours 
in a day — you can leverage your efforts 
and sell far more by selling through others. 
Selling through others involves creating a 
buzz around your products and services by 
getting people to talk about them (through 
word of mouth or through your promotional 
efforts), obtaining referrals from satisfied 
customers, and generating interest in the 

(*" Written communications: Brochures, ad- 
vertisements, newsletters, targeted e-mail 
messages, sales letters, proposals, and 
thank-you notes are all different ways of 
using the power of the written word to sell 

your products and services. If you're not 
comfortable selling your company's prod- 
ucts and services personally, or if you 
would have difficulty giving your potential 
customers samples of your products and 
services (for example, giving a potential 
customer a sample of your car-detailing 
services without actually detailing his car), 
you should try selling your product through 
written communications. Again, properly 
used, written communications can leverage 
your own direct-selling efforts and gener- 
ate far more leads and sales than personal 
contact alone could ever do. 

j-" Showing what you can do: Sometimes a 
demonstration of a product or service can 
spark sales like nothing else. Product sam- 
ples, videotaped demonstrations, Web 
sites, house parties, productdisplays, audio 
tapes, photos, and trial subscriptions are all 
ways of showing what you and your busi- 
ness can do for your clients-to-be. When 
your prospective customers want to try 
your product before they buy, or if you know 
that once your customers have a chance to 
actually use your products or services, 
they'll be hooked, showing whatyou can do 
is the right approach. 

Which approach works best for you depends on 
a variety of factors, including the nature of your 
business, the likes and dislikes of your typical 
customer, your customers' buying habits, and 
the complexity of your product or service. Be 
sure to keep each of these considerations in 
mind as you decide which approach to take in 
marketing your own products and services. 

your hard work). As you gain clients and customers — and start doing paid 
work — you can reduce the amount of time and money that you devote to 
marketing, but it should never be forgotten. When you own your own busi- 
ness and rely on it for your livelihood, it's important to keep a steady flow of 
new business in the pipeline, ready to pick up the slack as you complete your 

Chapter 4: Marketing 101: Getting Customers (j 


work for current clients. For most home-based business owners, plan on 
making an ongoing commitment of at least 20 percent of your time to market- 
ing activities. 

Why bother? Won't your products sell themselves? Few — if any — products 
truly sell themselves (and if someone trying to sell you on a business oppor- 
tunity tells you otherwise, your internal lie detector should be on red alert). 
Selling your products and services requires constant marketing — you can't 
simply create something and hope it will sell. 

The good news is that you can promote your business in a variety of ways. If 
you decide to tackle even just a few of them, you can easily create a success- 
ful marketing campaign for your home-based business that can propel your 
home-based business to the front of the pack. In the following sections, we 
show you some of the most popular and effective ways to do just that. 

Word of mouth 

Word of mouth means getting people to talk about you, your company, and 
its products and services in a positive light. Of course, the more people talk, 
the better your company looks as a result, and the better it is for your busi- 
ness. That's exactly why any good promotional campaign starts off with a 
heavy emphasis on generating positive word-of-mouth excitement. There's 
nothing like a little bit of buzz to get your sales to take off. 

Here are some of the best ways to get people talking about your business: 

*«* Networking: Everyone has a circle of friends and acquaintances — both 
in work lives and in nonwork lives. Or you might belong to a community- 
service or fraternal or sororal organization such as Optimists, Junior 
League, Rotary, BPO Elks, Lions International, or others. Your networks of 
friends and acquaintances are probably the first and best places to start 
a word-of-mouth campaign for promoting your business. They know you, 
they like you (at least, we hope so), and they will be willing to tell their 
friends and acquaintances about you (who will then tell others, and on 
and on). See the following section on referrals for more information. 

u* Volunteering: Why not give something back to your community by vol- 
unteering your time? Whether helping out at a local school, crisis center, 
animal shelter, or other community-based organization, you can be sure 
to meet a variety of people who may one day become your future clients 
and customers. Chances are, members of the board of directors and 
some volunteers are influential people who, if they like you and what 
you do, can give you business or refer business to you (see the following 
section for more on referrals). 

(11 Part I: Beginning at the Beginning 

f" Sponsorships: Sponsoring a kids' baseball team, local charity, parade, or 
other special event can be another good way to generate word-of-mouth 
promotional opportunities. Be careful, though, that you're not just one 
sponsor lost in a flood of others — your message will be ineffective. It's 
far better to choose your opportunities so that your business is featured 
and particularly noticeable to your target audience. 

t^ Business cards and letterhead: These are the mainstays of most busi- 
nesses' promotional efforts. Your letterhead and business cards can 
convey a lot of information to your prospective clients and customers, 
and get people talking about your business. Invest a few dollars in a pro- 
fessional logo design, and you'll make a great first impression on your 
prospects while conveying the right kind of message to your current 
customers and clients. 

Word of mouth costs your business little, but the payoff can be great. Look 
for opportunities to generate a buzz about your business wherever and 
whenever you can. If people aren't talking about your business, you can be 
sure they won't be buying from it, either! 


Getting referrals — when people you know direct clients and acquaintances 
to your business — is the number-one way that many home-based businesses 
obtain new business. Although current clients are your bread and butter, and 
the best possible sources for vital repeat business, new clients provide 
opportunities to grow your business while covering for financial shortfalls if 
current customers decide to shop elsewhere. 

Referrals are extremely powerful because when they come to you, they have 
already been presold on your business and your products or services. Here 
are some other advantages: 

u* Referrals are less expensive than many other kinds of marketing. No 

costly Yellow Pages ads to run, no billboards to erect, and no extrava- 
gant mail-order campaign to launch. Referrals cost little or no money to 
obtain. And maintaining a favorable relationship with the people who 
give you referrals means simply doing good work for them and letting 
them know from time to time that you appreciate their business (per- 
haps with a discount on your products or services, a small gift, or some 
other token of your appreciation). 

*«* Referred customers trust you. When people turn to their trusted friends 
and business acquaintances for advice on whom to hire for a particular 
job or to provide a particular product, they automatically tend believe 
the recommendations that they hear. As the saying goes, You have only 
one chance to make a first impression. When someone recommends you, 
you've already made a positive first impression with your client-to-be. 

Chapter 4: Marketing 101: Getting Customers ( O 

f" Referred customers are ready to buy from you. When people ask their 
friends and business acquaintances for referrals, they're ready to buy. 
People wouldn't ask if they weren't. And because people trust the opin- 
ion of those they ask, most people go no further in their search for 
sources than the person or business recommended to them. 

Identifying potential referrals 

So where do you find referrals? Here are the most common places: 

i^ Family and friends: If you don't yet have current clients, family and 
friends are a great place to start for getting referrals. Make sure that 
everyone you personally know is familiar with your new venture — what 
it is and what you do — and that you're looking for customers to help 
get it off the ground. Most will be more than happy to help. 

i<* Current clients: If you're doing good work for your current clients (and 
you are, aren't you?), they will refer friends and business acquaintances 
to you when asked for recommendations. Just make sure you don't let 
your work with your current clients suffer as you take on new work — 
you need to walk a very fine balance in your business between deliver- 
ing on your current work and developing new work. 

To help ensure that your clients will want to share you with others 
(don't laugh; some may want to keep you all to themselves), be sure to 
meaningfully thank them for the referrals they make and consider pro- 
viding additional incentives for providing them. Examples of incentives 
depend on the kind of business you have but could include half off their 
next order or a free automobile detail. 

is* Business associates: Vendors and other nonclient business associates 
can be another rich source of referrals. If you have a good reputation in 
your field, and if they like you, they will gladly tell their business associ- 
ates about you. Of course, they will be equally happy if you send some 
business their way, too. 

i<* Other home-based businesses: Many home-based businesses are one- 
person operations and, as such, can have a hard time dealing with the 
inevitable business peaks and valleys. Sometimes work is plentiful, 
sometimes not. In those times when another home-based business is 
overwhelmed, a good option is to farm the extra work out to a trusted 
and proven company — yours. Why not become the company of choice 
for other home-based businesses in your industry? 

Getting referrals for your business 

Okay, now that you know where to find your referrals, exactly how are you 
supposed to get them? Unless you find a genie in a lamp on the beach, the 
best way is simply to ask. When you do good work for a client, thank her for 
choosing you, and let her know that referrals are welcome and appreciated. 
The following is a list of five other great ways to get referrals: 

( %} Part I: Beginning at the Beginning 

v* Do great work. By far the best way to get great referrals is to do great 
work. People are proud of themselves when they find businesses that 
provide them with above-average service and products, and they want 
to tell others of their good fortune (and their good business sense). Do 
great work, and your clients and customers will be the best marketing 
tools you could ever ask for. 

t^ Build a mailing list. A mailing list of all your referrals can be a powerful 
tool in your promotional efforts. Because they are already presold on 
you and your business, your referrals will generally welcome hearing 
from you on an ongoing basis. List Builder (www . 1 i stbui 1 der . com) is a 
terrific Internet e-mail-based service that allows you to send periodic 
newsletters to your referrals for a nominal fee. Just one click of the 
button, and your message is sent to your entire mailing list — whether 
it consists of one person or a thousand — in a matter of seconds. Your 
clients can opt into and out of your mailing list easily and with the 
barest minimum of muss or fuss. 

*<* Keep your mailing list informed. Many home-based business owners 
have discovered the value of keeping their referrals up-to-date with the 
latest news about their products and services. Not only do past and pre- 
sent clients enjoy reading such stories, but they also really enjoy reading 
about themselves. Make a point of playing up customer success stories 
as much as possible. 

*<* Always send a thank-you note. People appreciate it when you take the 
time to thank them for sending you a referral. Whenever a new customer 
is referred to you, make a point of immediately sending a handwritten 
thank-you note to the referrer. It's far better to take the time to personal- 
ize your thank-you note than to just dash off a quick e-mail. Depending 
on the nature of your business, you can also send a small gift or a certifi- 
cate good for a discount on your client's next purchase. 

i* Make referrals yourself. As your business grows, you'll soon find that 
people come to you seeking referrals. Pick out several high-quality and 
trusted companies to use for referrals, and be sure to let their owners 
know when you have sent a client their way. Not only will your clients be 
thankful for the referral, but the companies to which you make referrals 
will also be more likely to make referrals to you. 

Public relations 

In general, public relations (PR) means the release of information to the gen- 
eral public to favorably influence its opinion about you, your business, or 
your products and services. Because of the nature of PR — and the potential 
for information to be broadcast over a wide area through print or electronic 
media — its successful execution can lead to your message being communi- 
cated to an amazing number of people. If you handle your own public rela- 
tions, the cost is minimal. If you farm it out to a consultant or PR firm, expect 
to pay $50 to $100 per hour or more. 

Chapter 4: Marketing 101: Getting Customers / / 


Collaborating without getting lost 

Q: We are a new small business. We offer public 
relations, marketing, and fund-raising. A local 
advertising agency has outsourced several 
small jobs to us. Now the owner wants to 
include our names on his marketing materials 
but doesn't want to use our company name. Is 
this standard business practice? It seems like 
he's using our services to market his business. 

A: Business-to-business collaboration is one of 
the major trends increasingly common among 
small businesses today. In researching our book 
Teaming Up, we found that 65 percent of 
the business owners we interviewed — all of 
whom had been in business for more than five 
years — were teaming up in some way with 
other small businesses, and most wanted to do 
even more in the future. One message was 
clear, though: In creating such collaborations, 
there is no standard business practice unless it 
would be to say, "It's all negotiable." 

We found ten types of strategic alliances that 
range from networking to virtual organizations. 
Many types of collaborations, such as joint ven- 
tures and mutual referral agreements, involve 
each company promoting its own identity. In 
others, like satellite subcontracting and inter- 
dependent alliances, the company that gets the 
business usually is the one whose company 
name is used on a particular contract. Here are 
the types of alliances we found: 

w Networking 

v* Mutual referrals 

j-" Cross-promoting 

v* Interdependent alliances 

j-" Joint ventures 

*<" Satellite subcontracting 

*<" Consortiums 

u* Family/spouse collaboration 

*<" Partnerships 

*<" Virtual organizations 

Kurt Zell, for example, has a production com- 
pany through which he subcontracts work to 
independent camera and sound professionals. 
He gets the business and brings in independent 
professionals who work as part of his organiza- 
tion. They are paid by Zell's company, not by the 
client. In relationships like this, it would be 
highly unethical for a subcontractor to market 
his own business to clients brought in through 
the contractor. 

In your situation, the ad exec evidently believes 
that including your names and expertise on his 
marketing materials will help him get more busi- 
ness. For you, this arrangement could mean an 
inflow of new business with no marketing costs. 
But you must determine if you see a downside 
to such an arrangement. If so, strive to negoti- 
ate a more desirable arrangement. 

Among your options would be to suggest that 
you contribute to the cost of producing his busi- 
ness cards and marketing materials in return for 
including your company name. Then you can 
agree to pay a referral fee for any business that 
comes directly to you from these materials 
or simply agree to bring the agency in on 
any business project arising from these materi- 
als. Alternatively, you can include his services 
on your promotional materials as a way of help- 
ing you attract larger projects that include 

/ Q Part I: Beginning at the Beginning 

f" Publicity (newspapers, magazines, Internet, and other media): Have 
you ever seen a newspaper article about some hot new local business or 
a special-interest TV news story about the latest-and-greatest home- 
based business opportunity? Chances are it's no accident that that par- 
ticular piece of news made it to your eyes and ears — the business that 
is its subject likely spent money to make sure it showed up on the media 
radar screen. The media thrive on interesting stories, especially human- 
interest ones with an uplifting message. By creating an interesting and 
positive story around your business — and getting it in front of the 
media — you can generate the kind of publicity you seek, drawing poten- 
tial clients and customers in the process. 

u* Press releases: Press releases are brief summaries of company news 
that are specifically targeted at the media. The hope is that newspapers, 
magazines, radio, television, and other media outlets will find the press 
release newsworthy and give it exposure. Chances are they will. The 
good news is that if the media pick up on your press release and publi- 
cize it, you'll get wide distribution for free. To have the best chance of 
gaining the kind of reaction you seek from the media, be sure your press 
release is tailored to the particular interests of the media outlet that you 
seek. A pitch to Oprah, for example, is going to be quite different from a 
pitch to Late Night with David Letterman, which will be different again 
from a pitch written to your small, hometown weekly newspaper. 

*<* Letters to the editor: Anyone can write a letter to the editor, about most 
any topic. It's easy, and it offers a unique way to get your message in 
front of thousands of readers at a price that's hard to beat: the price of a 
first-class stamp (or less, if you write via e-mail). If, for example, you 
own a home-based business that specializes in home security systems 
(alarms, deadbolt locks, and so on), you can comment on a recent arti- 
cle about a rise in crime rates while throwing in a plug for the products 
and services that your company happens to sell. 

V Speeches: Have you thought about making a speech to a local service 
club — say, a Rotary or Lions Club — or to local business organizations? 
All kinds of business associations, clubs, and other organizations exist in 
every city, and they tend to have lots of meetings. And guess what every 
organization needs for every meeting? A speaker. Whether you speak to 
your local chamber of commerce, the Society for Human Resources 
Professionals, or a local software special interest group (SIG), you have a 
great opportunity to promote yourself and your company by sharing 
your expertise with others. And you just may get a free lunch or dinner 
out of it, too (but beware: they don't call it the rubber-chicken circuit for 

i^ Seminars: Seminars are a terrific way to generate new customers and 
clients — and make a few bucks in the process. Home-based financial 
planners, for example, often use seminars to generate business. Here's 
how that works: You send out announcements for a free seminar, usually 
held at a nice local hotel, to prospective customers and possible referral 
sources. Rent out a meeting room at the hotel (much better than trying 

Chapter 4: Marketing 101: Getting Customers / y 

to jam 65 people into your living room), and arrange for the seminar to 
be catered with a light meal and refreshments. During the course of the 
seminar, you provide attendees with lots of usable information and pass 
out brochures, pamphlets, and other promotional material — all embla- 
zoned with your company's name and contact information. After the 
seminar, guess who the attendees' first choice is whenever they have 
questions about the subject matter of the seminar or need help setting 
up their own personal financial plan? 

One of the great things about public relations is that if you have a bit of time 
to spend, you can generate your own PR materials and make your own con- 
tacts. And the more PR you do, the better you'll get at it. Not only will you 
become more confident in your abilities and savvy in how the system works, 
but you'll also make contacts in the media and in your community that you 
can keep coming back to. 

Direct marketing 

Direct marketing means making direct contact with potential clients, most 
often by mailing, faxing, or e-mailing them promotional messages. However 
you do it, the point is to get your message squarely in front of a decision- 
maker in a way that will capture his interest in a moment. Any longer, and 
your prospect will likely throw your message in the trash — at no small 
expense to you and your business. 

u* Direct mail: Although direct mail — or, ahem, junk mail — can be a major 
headache for many who receive it, when it's targeted precisely to poten- 
tial customers and clients, it can be a cost-effective way of getting your 
message in front of the people most likely to buy your products and ser- 
vices. You can target your prospects very precisely by renting mailing 
lists of people within specific demographic groups. Do you want to reach 
human resources managers only? No problem. People who live within a 
particular ZIP code? Easy. People who recently bought a house? Piece of 
cake. For a fairly reasonable fee, you can buy hundreds or even thou- 
sands of up-to-date mailing labels for exactly the kind of people you want 
to reach with your message. Regardless of how much people complain 
about receiving direct-mail solicitations, enough of them usually respond 
to make it worthwhile. For more information on direct-mail marketing, 
check out the Direct Mail Association Web site (www.the-dma .org). 

W Circulars and flyers: With a computer and a printer or photocopier, you 
can create all the circulars and flyers you could ever want, make thou- 
sands of copies, and blanket your clients-to-be with them. Drop them in 
your direct-mail envelopes, or pass them around your neighborhood. 
With a little practice, you can create circulars and flyers in minutes, and 
the price is very easy on the budget. You probably won't get as good a 
response as you would from a direct-mail campaign, but it's certainly 
worth a try. 

o() Part I: Beginning at the Beginning 


v* Giveaways and contests: One of the tried-and-true methods of attracting 
the attention of potential clients is to give something away — the more 
attractive the prize, the more attention you'll get. And that's really the 
whole point of promoting your business: to attract your potential 
clients' attention long enough to show them the benefits of your prod- 
ucts and services. 

*«* Incentives: Businesses commonly use incentives to get prospective 
clients and customers to buy. Whether you offer two for the price of one 
or give a coupon for 10 percent off the next purchase, incentives are a 
standard tool in the marketing campaigns of many regular businesses, 
and they work just as well for home-based businesses. 

«-" Newsletters: If you're ready to get a bit more sophisticated in your 
direct-marketing efforts, consider creating a newsletter. Businesses 
create newsletters to provide customers and clients with value-added 
tools and information while also serving as a platform for promoting the 
company's products and services. If you run a pet-sitting business out of 
your home, you can create a one- or two-page newsletter with the latest 
trends in pet care, along with plugs for your business. If you're a lawyer 
who specializes in employment law, you can keep your clients up-to-date 
on the latest developments in the field. Sending your newsletter by 
e-mail or fax lowers your costs and time investment. 

One more thing: If you have neither the time nor inclination to create a 
quality newsletter yourself, consider hiring a home-based desktop pub- 
lishing professional to do it for you. 

You can spend as little or as much as you want on direct marketing, but the 
results you get will be directly proportional to the amount of money and 
effort you put into preparing your direct-marketing pieces and precisely 
selecting the individuals who receive your message. Investing some quality 
time and money now will pay off big-time later. 


When many people think about marketing, they are thinking about advertis- 
ing. Advertising your products and services can be an effective way to get the 
word out, but it can also be expensive (and, frankly, a waste of money for 
many home-based businesses). The key is to be sure that your advertise- 
ments are specifically targeted and that you advertise in places where your 
potential clients are most likely to read or hear your message. 

t^ Yellow Pages ads: For many businesses, running a Yellow Pages adver- 
tisement is essential. It can be expensive — in the thousands of dollars 
for an ad large enough to stand out — but effective. Can you imagine a 
successful plumbing, appliance repair, or tree-trimming business — 
home based or not — that doesn't rely heavily on the Yellow Pages? 

Chapter 4: Marketing 101: Getting Customers q / 

is* Business directories: Business directories are another good way to get 
the word out about your company, as long as your potential clients and 
customers are likely to see your listing. Most directories have tradition- 
ally been available in printed form, but an increasing number are now 
found on the Internet. With just a few mouse clicks, your clients-to-be 
will be able to find out more about your company and discover what it 
has to offer them. 

f" Web site: Creating a Web site to market your business and its products 
and services is a must for most businesses today, small and large. The 
good news is that starting up and maintaining a Web site is easier and 
less expensive than ever. (See the "Web sites and e-commerce" section 
later in this chapter and Chapter 5 for more information.) 

is* Web site advertisements: Although banner advertisements have long 
been the standard method for advertising businesses on the Web, a rela- 
tively new innovation is taking hold: targeted advertising on search 
engines such as Google (in Google's case, called AdWords) that is geared 
to specific keyword searches. If you're a home-based plumber, for exam- 
ple, you can have your business show up at the top of the list whenever 
someone does a keyword search for faucet repair. You don't pay unless 
the person doing the searching clicks your listing. Relative to print, 
radio, and TV ads (which are quite expensive), Web site advertisements 
are a bargain. Better yet is getting links to your site from as many other 
high-traffic Web sites as you can. 

*<* Your own radio or TV show: Would you like to get your message out to 
thousands of people every week? Why not host your own radio or televi- 
sion show? If your business is interesting enough to generate public 
interest, you have a real shot at it. Paul and Sarah's radio show, "The 
Entrepreneur Magazine Home-Based Biz Show," on ws Rad i o . com reaches 
many thousands of listeners each week. 

Web sites and e-commerce 

More businesses than ever are moving to establish a presence on the 
Internet, and being e-commerce-capable is rapidly becoming the standard 
worldwide. Despite challenges facing an organization that decides to market 
itself on the Web (getting your site noticed in a sea of millions is just one 
challenge), having a Web site is still a great idea for many home-based busi- 
nesses. If your company doesn't yet have its own site, chances are it soon 
will. The simple fact is that building and maintaining a Web site is now con- 
sidered to be essential to any organization's marketing plan — just as impor- 
tant as printing brochures; placing ads in targeted publications; networking 
with potential clients; and performing other, more traditional marketing 

82 P art ' : Beginning at the Beginning 

At its heart, a company Web site is nothing more than a glossy, full-color 
brochure — with a twist: The Web site is available to potential clients 
instantly, anywhere in the world, at any time of the day or night. It can be 
interactive, respond to visitor queries, communicate with clients in real time 
through online chats and message forums, and provide customers a place to 
research your products — and buy them. 

Today any business can have a Web site, including home-based businesses. 
Our advice is that if you believe your sales will benefit by establishing a Web 
presence for your business, make creating a Web site a priority. 

Even if your business is a local, high-touch one, a Web site is important 


l** It increasingly serves in lieu of a printed or mailed brochure — one 
that can be updated immediately. A Web site is a much faster and gen- 
erally more convenient way for your potential customers to get informa- 
tion about your products and services. Instead of waiting to receive a 
brochure in the mail, they can type in your Web site address and obtain 
the information in seconds. 

Is creating a Web site a good idea? 

Q: I'm a photographer and sell most of my work 
through art fairs. Recently, more and more 
people are asking me if I have a Web site. I 
don't, but I'm starting to wonder if I should. 
What would the advantages really be, and 
would they be worth both the time and the 

A: Having a Web site for any business is fairly 
common today. We just interviewed hundreds 
of home-based businesses for The Best Home 
Businesses for People 50+ and found the major- 
ity of them have Web sites. This is about double 
the percentage when the first edition of this 
book came out in 2000. But there are some 

You won't be surprised to find out we think 
having a Web site is worth it. On the up side, 
we found many people, from interim executives 
to former brick-and-mortar shop owners, who 
get their business or do their business from 
the Web. 

Because photographs are visual, selling your- 
self and them via a Web site is a natural. You 
can sell your images on your own Web site. 
However, we believe you should put up a Web 
site only when you are able and willing to keep 
it up. A Web address that yields a "Cannotfind" 
message or is obviously out-of-date works 
against you, particularly if you're using your site 
to attract photography clients. 

So if you're not readyfor your own site, you can 
sell your images on such sites as Photog- 
raphers' Portfolios at 
portfolio/home port. html, Portfolios 
Online at www., and Sell 
Photos at www. sell photos, com. 

We suggest visiting the sites of other photogra- 
phers and talking with them about their experi- 
ences. For example, nature photographer 
Ernest Hori has a site at www.horizen, and portrait photographer Mary 
Ann Halpin has one at www. goddesshood. 

Chapter 4: Marketing 101: Getting Customers Oj 

u* With a clear majority of homes and businesses having Internet access, 
increasingly people are going online to check out a business they 
have heard about or been referred to. To not be there when they click 
is to ensure losing business. For this reason, it's a good idea to use your 
business name as your Web site address. Only a little over 10 percent of 
all Web sites are found in search engines, so you want to make finding 
your business on the Web as easy and intuitive as possible. 

u* The Web is becoming the new Yellow Pages. Getting listed in search 
engines and exchanging links with sites that people are likely to turn to 
when looking for your kind of business is good business for you. 

But what if you know nothing about creating a Web site? How do you go 
about making one happen? Will you have to spend thousands of dollars to get 
your Web site up and running, or do you have more affordable options? 
These and other questions are addressed in detail in Chapter 5. 

Developing a Marketing Plan — Alau/f 

Whenever you want to achieve a measurable goal within a specific period of 
time, you greatly enhance your chances of doing so by having a plan. Plans 
make your goals real: They organize and prioritize your actions, and they tell 
you how far along you are toward achieving them. 

If you've read through some of the earlier sections of this chapter, you're 
probably already thinking of lots of ways to start marketing your products 
and services. You may be ready to start up a Web site, seek referrals, or 
create an e-mail newsletter for your current customers and clients. A market- 
ing plan is simply a written version of the many different ideas that are proba- 
bly now spinning through your head. It's not the same as a business plan, 
which takes a much broader look at your business goals and plans, including 
marketing. A marketing plan summarizes all of your marketing goals and 
strategies, along with the actual methods you can use to achieve them, and 
states milestones and deadlines for achieving your goals. A marketing plan 
answers the following questions: 

is* Who are your target customers and clients? 

v* What are your unique product attributes and advantages in the 

i* Where will you focus your marketing efforts? 

i* When will you implement each step in your marketing plan? 

v* How much revenue do you expect your marketing plans to generate, and 
how much will it cost you to generate that level of sales? 

Oil Part I: Beginning at the Beginning 


This marketing plan belongs to you, and you can make it as simple or as 
complex as you want. If you're just starting out, a one-page or even a one- 
paragraph plan may be just right. As your company gets bigger, you may 
see benefits in expanding your plan to meet its growing needs. 

The following sections review the five key parts of a good marketing plan. 

Part 1: OverView! 

Also known as an executive summary, the marketing plan overview provides a 
glimpse of your overall plan without bogging the reader down in the details 
that are presented later in the document. Upon reading the overview, a 
reader can get a pretty good idea about your overall marketing strategy, 
market focus, product focus, and the tactics and programs you plan to put 
into effect. Projected revenues — the estimated amount of money you intend 
to bring into the business during the period of the plan, as well as the budget 
required to achieve that level of sales — are also important parts of the 
marketing-plan overview. 

Part 2: Marketing objectives 

Marketing goals and objectives define the targets that you hope to achieve in 
your marketing efforts. Your goals may be modest (To increase sales 10 per- 
cent a year for the next three years) or quite ambitious (To be the company of 
choice whenever anyone in the nation needs a dog groomed). 

This section of the marketing plan should, at a minimum, include: 

v* An overall objective for your marketing efforts (To become the preferred 
source of Internet solutions for doctors and dentists). 

*<* Several specific marketing objectives, such as units sold, market share 
(the percentage of the overall market that your company commands), 
or distribution channels (Twenty-five percent of sales will be through 
Target stores). 

u* Basic financial objectives, such as total sales and profit for the year. 

Part 3: Situation analysis 

This part of the marketing plan reveals what's going on in the marketplace: 
who your competition is, which similar products exist and what their relative 
success is, market trends, and so on. The idea is to develop a good under- 
standing of your customer base, its needs and wants, and your strengths and 
weaknesses relative to the competition. Be sure to include the following: 

Chapter 4: Marketing 101: Getting Customers o3 

*«* A summary of the demographics (the characteristics of a population, 
such as age, gender, income, and so on), and economic, technological, 
and social trends that impact your customers. You can get this informa- 
tion through the Internet or the reference section of your public library. 

W A list of your key competitors, including strengths, weaknesses, prod- 
ucts and services, market share, and other key information. See Chap- 
ter 8 for how best to collect this kind of information. 

v* A brief discussion of your target customer, as well as his or her wants 
and needs. You should know your customer as well as you know the 
back of your hand — perhaps even better. 

V A summary of your key products and services, along with a discussion 
of their advantages and disadvantages versus the competition. 

*<* A discussion of your current distribution channels (if any) and how they 
help or hinder the product marketing process. 

Part 4: Marketing strategies 

For every key marketing objective listed in your plan (see "Part 2: Marketing 
objectives," earlier in this chapter), you should have one or more marketing 
strategies for achieving it. Include a minimum of the following: 

v* The specific features of your products and services that you can use to 
help you market them, such as convenience, speed, ease of use, and so 
on. Consider why people will buy your products and services instead of 
someone else's. 

u* A pricing strategy for your products and services. To find out more 
about the fine art of product pricing, check out Chapter 8. 

V Specific strategies to promote your products. For ideas on promoting 
your products, see earlier in this chapter. 

*<* Specific strategies for getting your products and services into the 
hands of your customers and clients. This, for example, includes using 
e-commerce and developing relationships with distributors. 

Part 5: Financials 

This part of the marketing plan takes all the words in the previous sections 
and turns them into numbers — specifically, dollars and cents. An annual 
marketing plan gives financial information for an entire year and may be 
broken down into months or quarters. Be sure to include the following: 


Part I: Beginning at the Beginning 

is* Detailed projections of anticipated revenues and percentage growth 
(or decline) — by product or service — from the previous period. For 
example, revenues of $55,000 for the year, reflecting 10 percent growth 
over the previous year. 

v* Detailed projections of expenses required to obtain the projected rev- 
enues. For example, attending industry conferences, including roundtrip 
airfares, hotels, taxis, and the cost of meals. 


When putting your marketing plan into action, consider using Paul and 
Sarah's 5/5/5 approach to marketing. The 5/5/5 approach involves using five 
different avenues for reaching prospects, and initiating and following through 
on five different activities every day, week, or month, depending on how 
much business you need (daily, if you have little or no business yet; weekly, if 
you have some but need more; monthly, if you have ample business and want 
to be sure you sustain it). This is the best way we've found to be sure you are 
doing the level of marketing activity you need to succeed. You can get further 
details in their book Getting Business to Come to You. 

Putting an idea into action 

Q: I've drawn up a plethora of sketches of blue 
jeans, and now I'm satisfied with one I thinkthe 
public would rush to purchase. How do I pro- 
ceed with manufacturing and finding a buyer? 

A: Some business experts may view the idea of 
a solo novice designer like yourself going head- 
to-head in a highly competitive field of giants 
like Levi's and Lee to be a pipe dream. But we've 
seen too many people defy the odds to discour- 
age you from proceeding if you're sufficiently 
passionate, committed, and determined. The 
novice designers we've seen succeed have 
done so in two ways: by carving out a highly 
specific niche, such as designing specialized 
clothing for yoga devotees, orthodox Jewish 
professional women, or people with physical 
disabilities; or, for a mainstream item like jeans, 
by starting small and building up an avid follow- 
ing for a unique design that makes their line 
desirable to sales reps and retail stores. 

So before leaping into mass production here or 
abroad, we suggest offering your jeans directly 
to what you hope will be a mad rush of avid 
buyers by making (or hiring someone to make) 
several dozen and selling them yourself. You 
can do this at swap meets or sidewalk booths 
(as Ash Hudson did with his wildly popular 
Conart T-shirts) or by placing them in a few 
select boutiques (as Anna and Sarah Levinson 
did with their brightly colored Ripe Cosmetic nail 
polishes). After your jeans begin selling rapidly 
and attracting growing numbers of customers, 
you'll be ready to arrange for mass production 
and to contact reps or buyers — if they haven't 
sought you out already. 

You can contact reps through the Manufac- 
turers' Agents National Association (MANA) at 
One Spectrum Pointe, Suite 150, Lake Forest, CA 
92630, (877) 626-2776, www 

Chapter 5 

Making the Web Work for You 

In This Chapter 

Bidding for jobs 

Using directories to your advantage 

Networking on the Net 

Building an attractive site 

Putting your Web site together 

mMy eve a U heard about the tremendous opportunities that the Internet 
▼ ▼ has opened up for businesses of all sizes, shapes, and locations. 
Today, even the smallest home-based business — located in the most remote 
location in the country (can anyone say Nome, Alaska?) — can sell its prod- 
ucts and services to a worldwide base of customers via a Web site. 

But there are a lot of other businesses out there, all trying to get noticed and 
all trying to become the next Amazon or Google. The good news is that you 
don't have to become a huge company to take advantage of the Internet — 
many small, home-based businesses are doing quite well, thank you, selling 
their products and services via the Web. 

And you can, too. 

In this chapter, we explore using the Internet to bid for work and how to get 
listed and noticed in online directories. We explore the best approaches and 
places for networking with others on the Net and take a look at participating 
in Web-based collaborations and teams. Finally, we consider the best ways to 
attract clients and customers with your Web site and how to build and main- 
tain one that's first-class. 

Bidding (or Work 

Something interesting has been happening on the Internet over the past 
several years — a number of freelance bidding sites have sprung up with 
the express purpose of getting independent, home-based businesspeople 

OO Part I: Beginning at the Beginning 

together with companies that need work done. Although some such sites 
may be scams (see Chapter 13 for more about those), more than a few offer 
legitimate opportunities to home workers. 

Let's take a look at what you need to know to use the Internet to leverage 
your own business opportunities. 


Sites that specialize in putting 
buyers and setters together 

So what, exactly, is a freelance bidding site? A freelance bidding site is a Web 
site where companies can list jobs they need done (anything from writing 
advertising copy to building Web sites to doing graphic design), and free- 
lancers can bid on the work. The company needing the work selects a free- 
lancer and assigns the work, the home-based businessperson does the work 
and pays the bidding site a commission (usually, between 5 and 10 percent), 
and everyone is happy. 

In general, here's how freelance bidding sites work: 

w* Visit the site of your choice and register. 

U* Build your online resume, adding your particular skills and experience 
to the site. Be specific! 

«-" Conduct a search for projects that are suited to your experience. Look 
beyond the main categories at the subcategories and specialties. 

v* Bid on a project by providing an estimate of the price for the job and 
your time frame for completion. 

V Negotiate a deal with an interested company; then do the work. 

For someone with the right skills, this can be a relatively easy way to develop 
an ongoing stream of work that may be quite lucrative. Plenty of freelance 
bidding sites are out there, but be sure to check these out: 

v* www.scriptl a nee .com 
v www.smarterwork .com 
v* www.ework .com 
i* www. el ance. com 
*<" www. pros a vvy . com 

For a very comprehensive (and up-to-date) listing of legitimate freelance bid- 
ding sites, click on over to the FreelanceMom site: www . f reel ancemom . com/ 
gi gs . htm. 

Chapter 5: Making the Web Work for You Oy 

Tips for Winninq bids 

Guess what? You may be very well qualified in whatever it is that you do. You 
may have tons of experience and skills out the wazoo. But you're not alone. 
There are lots of other people with just as much experience — maybe more — 
and you're going to be competing with some of them when you decide to bid 
on a project. Here are ten tips on how to win that dream project: 

*«" Become intimately familiar with how the freelance bidding site you're 
using works. 

t^ Make your profile first-rate. In it, show your background in the field; 
your education, training, and credentials; the services you offer; and the 
range of your rates. If you need help with writing your profile, consider 
posting it as a job on one of the freelance boards for a writer to help 
you. You'll experience firsthand what it's like to receive bids and what 
impresses you about the bidders. 

v* Put up a portfolio with samples of your work. What a photographer or 
graphic or Web designer uses as samples is fairly obvious, but if you're a 
consultant, it's still worthwhile. To provide examples of projects you've 
managed successfully, if you have testimonials from customers, use 
them as text or audio files. 

t-" Demonstrate that you have the skills and tools needed to do the job, 
so if you're seeking virtual-assistant-type work, and you're certified in 
Microsoft Office Certification, say so. Don't be shy — show the buyer 
what you've got to offer. 

V Don't place your bids automatically or based on guesswork Ask good 
questions of the company or person seeking bids. Often, work descrip- 
tions are too sketchy or leave gaps. 

v* You are competing against bidders from all over the world, many of 
whom can and will underbid the prices most North Americans can 
charge. Do some market research; check to see what your competitors 
are bidding for the kind of work you want to do. Keep in mind wary 
buyers are apt to be just as suspicious of extremely low bids as they are 
turned off by a high one. 

V Propose payment schedules that will show you're motivated to get the 
work done in a timely manner, such as asking for a relatively low initial 
down payment of 20 or 25 percent and with progress payments based on 
agreed-upon milestones. 

i^ Go into more depth on your own Web site than you can with your portfo- 
lio. Portfolios can be too long, taxing buyers with too much to look at. 
Remember: They're reviewing other bidders' profiles and portfolios. If 
you interest them, they'll want to know more about you. 

y(/ Part I: Beginning at the Beginning 

U* If you're using Elance, consider becoming a Select Service provider. This 
helps the positioning of your bid and assures your prospects that your 
credentials have been verified. 

f" If at first you don't succeed 

. learn from your experience, and try 

Keys to keeping clients and building 
your business With them 

The best business relationships are long-term business relationships. Believe 
us: A bird in hand is definitely worth two or three in the bush. Whenever pos- 
sible, work to build strong relationships with your current clients and cus- 
tomers that will keep them bringing business your way far into the future. 

Here are some tips for keeping your clients happy and building long-term 
business relationships: 

**" Be on time and on budget. No client likes to hire someone who delivers 
his products or services late or wants more money to do the work than 
originally quoted. 

U* Do great work. Great work speaks for itself, and it will separate you 
from the home-based business wannabes. 

u* Be flexible. Business today is faster than ever, and companies must be 
able to change direction at moment's notice to keep up. So should you. 

*<* Be dependable and reliable. Be someone your client can rely on — if 
you are, you've already got most of your competition beat. 

u* No surprises! Don't surprise your client with bad news — keep her 
informed if you anticipate problems or delays. 

Getting Listed in directories 

Back in the good old pre-Internet days, if you were a small business and you 
wanted to attract customers or clients — especially if you ran your business 
out of your home or some other nonstorefront location — one of the first 
things you would do would be run an ad in the Yellow Pages. Having a listing 
in the Yellow Pages was essential for many kinds of businesses, especially 
service businesses such as plumbers, building contractors, tree trimmers, 
and many others. 

Chapter 5: Making the Web Work for You y / 

Although the Yellow Pages are nowhere near obsolete yet, there's a new 
directory on the block: the online directory. In this section, we'll explore 
some of the most common versions of this new business tool. 

Online business directories 

There are more online business directories on the Internet today than you 
can shake a stick at. These electronic Yellow Pages are all over the Internet. 
Some are — like anything else in life — better than others. Here are a few of 
the best: 

u* www.di recto com 

f www. yahoo .com 

w www.dmoz . org 

t* www.busi ness . com 

v* www.bizweb. com 

w www. a bu si ness resource. com 

w www. 

v www. bus in ess patrol .com 

j"* www.b2btoday . com 

You can get your site placed on any number of online directories, but our 
advice is to stick to the top ones — that is, the ones that get the most traffic 
and the ones specifically targeted to your kind of business (for example, a 
directory of landscape architects). Seek out these directories, and apply to 
have your site listed. You may have to follow up to ensure that it is indeed 
listed and that the listing information is correct. Be persistent if you need to 
be — it's your business we're talking about here. 

Association memberships 

Do you belong to an association? For example, if you're a graphic artist, you 
might belong to the Graphic Artists Guild or the Society of American Graphic 
Artists. Or you might belong to your local chamber of commerce or a 
community-based business association. Whatever your affiliation, one of 
the fringe benefits of belonging to many associations is the opportunity to 
be listed in their online member directories. 

y £ P art ' : Beginning at the Beginning 

Go to the Graphic Artists Guild Web site, for example (, and you 
can look at not just a listing of association members, but samples of their work 
as well, organized by practice: cartooning, graphic design, package design, and 
so forth. Associations do this to showcase the work of their members — all the 
better for a potential client who is looking for a certain style of artwork. 

If you don't yet belong to an association, consider joining one and getting 
listed in its online directory. If you already belong, make sure to take advan- 
tage of all the promotional and networking activities your association has to 
offer, including being listed in their online directories. One more thing: If 
there are changes in your business, such as a new phone number or Web site, 
remember to keep your directory listings current. 

Going local: SmartPage listings and 
search-engine local listings 

The problem with many online search engines and directories is that they 
include the whole wide world when you just want to attract customers in 
your small town in Saskatchewan. Some search engines and directories are 
getting wise to this desire and are creating services that focus on local offer- 
ings. When someone does a search for a specific kind of business — say, an 
aquarium or bookkeeping service — she can specify a city and state in which 
to search, providing results that are much more relevant and useful than 
what she'd get if the entire world was included in the search. 

Here's a sampling of some of the most popular: 

v* www. smart pages .com 

is* www. local 

*-" www. city search .com 

v www. local .yahoo. com 

v www.dogpi 1 e .com 

v* www.411web. com 

v* www. jumptoyourcity . com 

t* www .yel 1 . com (Great Britain) 

Again, just as in other online directories, be sure your business is listed. If it's 
not, submit it to the listing service, using whatever process they require. As 
soon as your listing goes live, be sure to check the information — business 
name, address, phone number, e-mail address, Web site URL — for accuracy. 

Chapter 5: Making the Web Work for You yj 

Networking the Internet Waif 

There's more to getting noticed on the Net than just putting up a Web site 
and waiting for the crowds to arrive. You can also make a splash — while 
driving traffic to your own site — by personally getting noticed on other 
people's Web sites. If you've got a particularly lively personality, or if you're 
knowledgeable and enjoy giving advice to others, and if you're polite and not 
prone to flaming (publicly insulting your online colleagues), you may soon 
find yourself a very popular fixture on many different Web sites — not just 
your own. 

Online fomms 

There are online forums devoted to just about every conceivable hobby, busi- 
ness, activity, and avocation imaginable: parenting; steam trains; Tivo digital 
video recorders; vintage Jeeps; politics; personal finance and investing; math; 
freedom; writing children's books; and much, much more. If you can imagine 
it, someone probably has a forum on it. 

Here's how one home-based business owner networks with potential cus- 
tomers through an online forum: 

Doug Roccaforte is the founder and owner of Roccaforte Amps (www . 
roccaf orteamps . com), a Brea, California-based manufacturer of high-end 
electric guitar amplifiers used by professional musicians such as Marc Ford, 
Ben Harper, Cesar Rosas, and many others. Sure, Doug could be content 
attending trade shows, developing his dealer network, and placing advertise- 
ments in guitar magazines, but he also spends time at the Amps discussion 
forum at www. harmony- central . com, which is most likely the most popular 
guitar-amplifier forum on the Internet. Doug is a very well-known and popular 
regular there. Not only is he a colorful personality — with strong opinions 
and a wry sense of humor — but he is also respected by forum members as 
one of today's greatest guitar-amplifier designers and manufacturers. The fact 
that he spends time on the site and is willing to give his advice and opinions 
about topics of interest to forum members keeps his products front and 
center in their minds and develops a buzz that no amount of advertising 
alone could buy, leading to lots of additional sales — sales that wouldn't 
have occurred without Doug's presence on the site. 

What sites are devoted to topics that relate to your products or services? 
Seek them out, become a member, and begin contributing. For a relatively 
small investment of your time, you'll definitely see a positive impact on your 
bottom line. 

yu Part I: Beginning at the Beginning 

You can find lists of forums and newsgroups on Google's Group directory 
site ( .com) and the Yahoo! Groups site (http: // 
groups. yahoo .com), as well as at sites like Jump City (www. jumpcity . com) 
and (www .tile. net). You can search for listserv groups on the soft- 
ware company's Web site at www . 1 sof t . com. Joining is easy, but remember 
to learn and honor the unique etiquette for each group you join. 

Many trade and professional associations have forums; some associations 
open them up to nonmembers. You can find many of these at the American 
Society of Association Executives' site (www., where the group 
provides a "Gateway to Associations" as a service to the public. 

Social networking sites 

Social networking sites are a relatively recent phenomenon: Web sites devoted 
to creating networks and communities of new friends and acquaintances. As 
members are added, they bring along their own network of family and friends, 
quickly creating large online social networks, some linked by common inter- 
ests (such as business) and some not. Here are a few examples: 

v* www.ecademy .com 

v www.f ri 

v www. 

*<" www. 1 i nkedi n . com 

j-"* www. mob i le. match. com 

t^* www. ryze. com 

i>* www.tri be .net 

t* www.f as tcomp any .com/cof 

Although the chances of developing serious business from your participation 
in a social networking site are more remote than by participating in forums 
specific to your expertise or business, if you've got the extra time available to 
make your presence known, it might be worth a try. 

Online etiquette for making 
Winning relationships 

Just as in your offline life, there are rules and norms for behavior while par- 
ticipating in online forums and networks. Here are some basic rules to follow 

Chapter 5: Making the Web Work for You y f} 

so that you'll find yourself a welcome participant rather than someone to be 

Bo . . . 

V Stay on topic. Make a point of posting only messages that are relevant to 
the subject of the forum or network in which you are participating. 

*<* Include the necessary information. If you're asking a question of forum 
members, be sure to give them a complete description of what your 
problem or issue is. This will help other readers of the forum in deter- 
mining a resolution to your issue. 

*«" Indicate whether you've asked your question elsewhere. If you pose 
your question through other channels, such as a third-party mailing list 
and so forth, indicate in your message all the places you're posting the 
question so your question gets answered only once. This saves effort 
and enables forum members to answer your question and other people's 
questions faster. 

u* Be nice. If you want the welcome mat to be out for you, refrain from 
inappropriate language and personal attacks. Remember the first rule of 
karma: What goes around, comes around. 

*«" Choose a descriptive title. This will help subsequent visitors to the 
forum successfully identify your topic. 

Don't . . . 

u* Don't cross-post. Posting a message to more than one forum is unneces- 
sary and creates extra traffic for you and others to read through. 

u* Don't quote previous messages. Quote only when absolutely necessary. 
Readers can easily view previous messages in their newsreader when 
needed, so you're just wasting space — and risking the ire of your forum 
mates — by quoting previous messages. 

u* Don't spam the site! Although most forums and online social networks 
will tolerate a small amount of plugging your business, blatant and ongo- 
ing plugs will incur the wrath of your forum mates. The best bet is to put 
a brief plug about your business (along with a link to your Web site) in 
your signature, the identifying line or lines tacked to the bottom of your 

w* Don't include graphics or other files in the forum posts. Don't post 
attachments. Most users don't want to download a file when reading 
your post, for time and security reasons. For those who have high con- 
nect costs, your post can be quite expensive. Please explain your point 
in writing, and include the URL of the file in your post so others can view 
it only if they wish to. 

y \) Part I: Beginning at the Beginning 


v* Don't duplicate threads. Before posting messages, be sure to familiarize 
yourself with the forum. If possible, check to make sure your topic has 
not already been addressed in a recent thread so that you're not simply 
duplicating another recent post. 

*<* Don't get too personal. Remember, all messages are public and will be 
viewed by others. 

v* Don't perpetuate off-topic threads. If someone makes an inappropriate 
or spam post, don't add more noise by replying to the forum. Criticize in 
private e-mail if you must. 

Be polite, helpful, and friendly — you'll attract far more business with honey 
than vinegar. 

Using \lour Web Site to Attract 
Customers and Clients 

Well, you've got a Web site; now what? Now you've got to figure out how to 
attract attention in the vast, open space that is the Internet. As of this writ- 
ing, there were more than 43 million active domain names (Web site names 
such as dummi es .com and workingfromhome .com), many of which have 
their own functioning Web sites attached to them. That's a lot of competition 
for customer eyeballs. 

In the sections that follow, we take a close look at how to attract potential 
customers and get them to buy once they find their way to your site. 


What it takes to yet traffic 

Traffic — that is, visitors to your Web site — is perhaps the key element that 
can make or break your online business. Generally, the more traffic, the 
better, assuming that it consists of people who might be interested in buying 
what you've got for sale. 

Just because you have a Web site doesn't mean anyone is going to show up. 
You may think if you build it, they will come, but although that might work in a 
Hollywood baseball fantasy, it's not necessarily the case for your new Web 
site. If you hope to be successful, you'll need to get more — and the right 
kind — of traffic to your site. Here are a few ideas for making that happen: 

Chapter 5: Making the Web Work for You y / 

f" Register with the most-visited search engines. There are hundreds of 
search engines available, but you shouldn't waste your time with 99.9 
percent of them. Our advice is to stick with the top ten: 

• Google (www . googl e . com) 

• Yahoo! (www. yahoo, com) 

• MSN (www . ms n . com) 

• America Online (www . aol .com) 

• Ask Jeeves (www.askjeeves . com) 

• Overture (www. overture, com) 

• (www .myway .com) 

• (www. i nf ormati on .com) 

• Lycos Networks (www. lycos . com) 

• (www.websearch .com) 

u* Register with pay-per-click search engines. The Google and Overture 
search engines offer an additional service (Google's is known as Google 
AdWords: www . adwords .googl e. com), where you can pay to have 
your company's site show up in a prominent location when someone 
searches a specific keyword or keywords. Let's say your home-based 
business is wedding consulting. Using Google AdWords, for a price you 
could have a small ad with a link show up any time someone searches 
the keywords wedding consultant. You pay only when someone does a 
search using your keywords, and the amount you pay depends on how 
popular the keywords are — more keyword competition means higher 

v* Create unique content. Don't make your Web site just a place to buy 
things; make it a place people want to visit to learn something new or 
participate in a unique experience. Take time to create unique content 
for your site that will attract busy Web surfers and then make them 
want to stick around awhile. Maybe you're a dog breeder specializing 
in French bulldogs. Why not create a Web site that is the best source of 
information on the breed in the entire world? By doing so, you'll drive 
all kinds of traffic to your site. 

i^ Start an affiliate program. Offer other Web site owners a commission 
on sales they send your way. The big sites, like Amazon, make affiliate 
programs a central part of their selling model — driving more traffic to 
their sites and increasing their sales. You can, too. Check out a variety 
of affiliate programs to see how commissions are structured and how to 
set up your own program. 

yQ Part I: Beginning at the Beginning 

i^ Exchange links. Are there sites out there that are somehow related to 
what you do but are not in direct competition? If so, ask the Webmaster 
to place a link to your site on the site in exchange for putting a link to 
the other site on yours. For example, say you provide fishing-guide ser- 
vices in the Yellowstone area. Why not exchange links with fishing Web 
sites or Web sites devoted to Yellowstone National Park? 

Making it easy for Visitors 
to become customers 

The points of having a Web site for your home-based business are to (1) 
attract potential customers to your offer and then (2) make it easy for them 
to buy Although many Web sites do a fine job getting people to visit, they 
drop the ball when it comes to converting visits to sales, often simply 
because they are too confusing, too slow, or just too much trouble to use. 

So your job is to make it easy for customers to buy what they want directly 
through your Web site, assuming you've got a product or service that lends 
itself to buying online. Here are some tips for doing just that: 

v Have a well-organized, professional-looking site. Nothing's worse than 
trying to buy something from an amateurish, disorganized site. 

u* If you're selling products, put up lots of high-quality photos and detailed 
descriptions. Many people want to see what they're getting before they 
order it. 

v* Make sure your Web hosting service has ample bandwidth to load your 
pages quickly. Slow servers mean your visitors will quickly get bored 
and leave. 

*<* Give your customers plenty of payment options. Use a prepackaged 
e-commerce site, such as Yahoo! Small Business Merchant Solutions, 
that allows customers to use charge cards. Or consider signing up for a 
payment service, such as PayPal, that also allows customers to use their 
charge cards to pay. 

*<* Provide ample contact information for customers who have questions. 
If you can quickly address questions — via phone or e-mail — there's 
a much greater chance of converting the contact into a sale. 

Not sure if your site is welcoming or not? Give it a try yourself. Is it easy to 
get around? Does it load quickly? Is it easy to place an order? Have friends 
and family try it out, too. Use their feedback to fine-tune your site and make it 
as user-friendly as possible. 

Chapter 5: Making the Web Work for You ^^ 

Building and Maintaining \lour Web Site 

Okay, so you've decided to start your own Web site — congratulations! Now 
what? Well, the first step is to build it. You can hire someone to do it for you 
or do it yourself (Peter built his Web site at www.petereconomy . com years 
ago using Microsoft FrontPage and maintains it himself to this day). 


Each approach, of course, has its pluses and minuses. Hiring someone to 
create and maintain your Web site will likely get you the most professional- 
looking site, but it may cost a lot of money, and you may have to wait for your 
Webmaster to make site updates for you. When building your own site, you'll 
have ultimate control over the site, and you'll likely pay less than hiring 
someone to do it for you, but the results may look amateurish at best, and — 
while you're playing with the software and troubleshooting the inevitable 
issues that arise during the site-building process — you'll be distracted from 
doing the things you normally do to make money. 


Hire someone to create and 
maintain your Web site 

If you have no interest in creating and maintaining your own Web site, plenty 
of Web-site design companies (many of them home-based businesses, by the 
way) would love to design it for you. It probably won't be cheap — anywhere 
from a couple of hundred dollars for a simple site to thousands for a much 
more complex one — but if you have no interest in learning the ins and outs 
of Web sites yourself (and we can't blame you if you don't), this is clearly the 
best option. 

Don't hire just anyone. Remember: Your site is going to be the first (and 
perhaps the last) thing that many potential customers and clients will see 
regarding your business. Make sure their first impression is a good one. 
Here are a few tips for finding a great Web-site designer: 

v* Interview Web-site designers just as you would a new employee. Get ref- 
erences, do an interview, check them out — the whole enchilada. 

v Ask your business acquaintances if they know of anyone who is good at 
designing Web sites. 

t-" After you locate some candidates, ask for a list of active Web sites that 
they have developed and actively maintain — and then visit them on 
your computer. How do they look? Are they attractive and well pro- 
duced, or are they a turnoff? Are they current and up-to-date, or do they 
look like they haven't been touched for months? 

7 00 P art ' : Beginning at the Beginning 

*«* Ask how soon your site will be up and running, and how much it will 
cost — not just to set it up, but also to periodically maintain it and trou- 
bleshoot problems. 

*<* Compare the work of several different designers before deciding. 

Only after you have a chance to fully explore your candidates' work and 
compare it with the work of others should you select the Web-site 
designer who is right for you. 

u* If you see a Web site that knocks your socks off, find out who designed 
it. Sometimes the designer's name is posted on the site, often at the 
bottom of the home page, but sometimes you need to ask the site owner. 
It's a good idea to talk with prior clients anyway. That's how Paul and 
Sarah found the designer for their site www .worki ngf romhome . com. 
They had three earlier designs that for one reason or another fell short, 
but not only do they now have a site that hits all the bases, it also was 
designed so that they can update it themselves using Microsoft 

Create a Web site yourself 

If you have a basic knowledge of the Internet, you can create your own Web 
site and have a lot of fun in the process. Although it can be a lot of fun build- 
ing your own site, make sure you don't have so much fun that you forget to 
sell your products and services, too. 

1. Select a Web hosting service. 

A Web hosting service sets up your Web site address (or URL), some- 
thing like yourname . com, and then hosts your site on its computers 
where anyone with access to the Web can access it. There are many, 
many Web hosting services, and they vary considerably in price and 
level of service. Most home-based businesses can get by with a bare- 
bones level of service, and you can figure on paying around $15 to 25 a 
month. It pays to shop around. Before you select a Web-hosting service, 
ask around for references, and be sure to visit some of the hosted sites 
to see how well they work. Peter's personal favorite is Dotster (www . 
dotster . com), but there are plenty of other ones around. 

2. Build your Web site. 

Some Web site hosting services offer simple, built-in Web-site creation 
software as part of their hosting packages. This may be all you need to 
create the site you want, and it's probably the best option if you're new 
to all this Internet stuff. However, if your needs go beyond what your 
host provides, consider buying software specifically designed for creat- 

Chapter 5: Making the Web Work for You J 01 

ing Web sites. Microsoft FrontPage, Macromedia Dreamweaver, and 
NetObjects Fusion are powerful and simple to use. If you can use a basic 
word-processing program, such as Microsoft Word, you can create your 
own Web site. And here's a news flash: Microsoft Word even allows you 
to save regular text pages as HTML (Hypertext Markup Language, the 
language of the Web) documents. Woo-hoo! 

Get free templates for Web sites at http : //f reesi tetempl ates . com. 
And you can learn about design standards at www .webstyl egui de . com. 

3. Maintain your own Web site. 

The great thing about creating and maintaining your own Web site is 
that you have full control over the content and when or how it is 
updated or modified. Need to add a new product to your listings? In five 
minutes, you're done. If you had to go through a hired third party, it 
could take days or even weeks for them to get around to making even 
this minor update. You'll also have direct access to your Web site's sta- 
tistics: how many visitors your site has, who they are, and where they 
are coming from. Using these statistics, you can find out which of your 
Web pages are the most and least popular, and adjust accordingly. 

For more information on this approach, be sure to take a look at Marketing 
Online For Dummies, by Bud Smith and Frank Catalano (Wiley). 

Skip the Web site and create 
an e-commerce site 

You can create an effective store on the Internet without having a Web site at 
all. How? An increasing number of established Web sites, including Yahoo! 
and, have gotten into the business of hosting e-commerce sites 
for other businesses. 

Of the current e-commerce providers, by far the best is Yahoo! Small Business 
Merchant Solutions (http : //smal 1 busi ness .yahoo . com/merchant). For 
only $40 a month for a basic site (plus a nominal fee — currently 1.5 percent — 
for each transaction), you can get your own online storefront up and running 
within minutes. Your customers can view photos of your products, put them 
into a shopping cart, and pay for their purchases by credit card. You have 
access to an amazingly comprehensive statistics package (telling you what 
products are selling best, revenue by item, what sites shoppers are coming 
from, and much more), and you'll be in good company: the L.A. Lakers bas- 
ketball team, Sanrio (you know, those Hello Kitty guys), Vermont Teddy Bear, 
Roadrunner Sports, and many more. 

/ (/£ Part I: Beginning at the Beginning 

The ten best ways to promote your Web site 

A Web site won't do you or your business much 
good if no one knows about it or visits it. What 
can you do to make sure people find out about 
your site and visit it? 

w Send announcements for your Web site 
(including a picture of your home page) to 
all your customers and clients, as well as to 
the media and targeted mailing lists of 
potential clients. 

v* Include your Web-site address on all exter- 
nal materials, including letterhead, business 
cards, catalogs, invoices, newsletters, pack- 
aging, and soon. 

j-" Incorporate your Web-site address into 
your standard fax cover sheet. 

<-" Include your Web-site address in your voice- 
mail system and in your on-hold message. 

j-" Include your Web-site address in all 

j-" Visit Internet newsgroups and message 
boards, leave messages, and participate in 
relevant discussions. 

*<" Seek out busy Web sites where you can 
volunteer to host online chats and confer- 
ences. Large sites, such as America Online 
and iVillage, are always looking for knowl- 
edgeable hosts who are willing to share 
their expertise with others. 

*<" Register your site with the five most popular 
Internet search engines (Google, Yahoo!, 
MSN, America Online, and Ask Jeeves), and 
be sure it is optimized to rank high in the 
search results (by incorporating meta tags 
and othertricks of the trade). 

*<" Trade links with your customers and clients 
and with other relevant Web sites. 

*<" Create an e-mail signature for yourself and 
your employees that includes your Web-site 
address. A signature is a short paragraph 
that's automatically included at the bottom 
of every e-mail message you send out. It 
usually contains a plug for your business, 
along with your address, phone or fax 
number, and a Web-site address. 

Regardless of who creates it, 
make your site good 

There are a number of secrets to creating a Web site that attracts and holds 
your clients' interests and encourages them to send their money your way: 

i* Be easy to find. Don't make it difficult for your clients to find you. Your 
URL (www.yourname .com) should be intuitively obvious. If, for example, 
your company's name is Acme Computer, your URL could be www . a cme 
computer . com. That way, clients (and clients-to-be) who don't have 
your address at their fingertips can easily guess it. Also, take the time to 
register your Web site with the four or five most-visited Internet search 

Chapter 5: Making the Web Work for You / 03 


engines and directories. Referrals from these sites — including Yahoo!, 
Excite, and Google — are a critical link in helping people find you. Check 
out a site called The Art of Business Web Site Promotion (www .dead 
1 ock . com/promote) for free advice on how to work the search engines 
to your advantage. 

Of course, many domains are taken, so you may have to settle for one 
that's longer (like Or, because many domain 
names are minimally used, you may be able to purchase a domain name 
you want from its current owner. If it's unused, and you are willing to 
wait for it to expire, you can back-order the name from a domain regis- 
tration service. Whatever your approach, put on your thinking cap, and 
be creative! 

*<* Advertise your new address like crazy. Everywhere, all the time. Include 
its address on your business cards, letterhead stationery, invoices, mar- 
keting brochures, and anyplace else you can possibly fit all those letters 
and dots. 

You may be approached by firms that promise to increase the traffic to 
your Web site. Maybe they will, and maybe they won't. If you do decide 
to hire a firm to increase traffic, be sure to ask exactly what they plan to 
do to reach the people most likely to buy your products and services, 
and what sort of guarantee they offer. Chances are you can do the same 
things on your own and save a lot of money in the process. 

*<* Give your visitors a reason to visit — and to come back again and 
again. The attention span of the average Web surfer can be measured in 
seconds. If your site is boring, or if it takes too long to load, your client 
or prospect will click out of the site just as quickly as he or she clicked 
in. Take a look at your competitors' sites to get an idea of what works 
and what doesn't. Use graphics, photographs, and attractive back- 
grounds to make your site look more appealing, but be careful that these 
byte-intensive files don't dramatically slow the speed at which your Web 
pages load. Above all, provide lots of fresh, value-added content in the 
form of news, reports, articles, surveys, industry trends, networking 
forums, and the like that will keep your clients and prospects coming 
back for more. 

*-" Capture contact information. When people visit your site, they're proba- 
bly not there by accident — they're there because they're interested in 
what you have to sell. Take advantage of this opportunity by encouraging 
your visitors to give you contact information that you can use in your 
organization's marketing and promotional efforts. For example, you can 
set up a guestbook where visitors can leave comments about your site, 
along with their name, title, address, and phone number. Or you can offer 
to mail a complementary copy of your client newsletter to prospects who 
are willing to give you their contact information. Contests, special offers, 
and surveys are all great ways of encouraging your visitors to give you 
their contact information. 

/ IX Part I: Beginning at the Beginning 

v* Check Web stats, and visit your site regularly. A good hosting service 
gives you access to vital statistics for your Web site: number of visitors 
each day; where they're from; how long they stayed; which pages they 
viewed; which search engine (if any) referred them to your site; and 
much, much more. By analyzing these statistics, you can quickly identify 
which parts of your site attract the most (and the least) visitors and test 
visitor response to site changes on a real-time basis. (Hint: Do more of 
what your visitors like and less of what they don't.) 

Also, regularly visit your site to make sure that it's working the way it's 
supposed to. Perhaps you won't be surprised to hear that some Web 
hosting services are better than others, and it's in your interest to make 
sure that your site is on more often than it's off. The easiest way to make 
a habit of visiting your site is to set it as your browser's home page. This 
way, it pops up every time you log onto the Internet. And ask your friends 
and family to also check it frequently and let you know if they run into 
any problems. If you're not sure how to change your browser's home 
page settings, click the Help button. 

Part II 

Your Money 

The 5 th Wave 

By Rich Tennant 

tt<L don't tell me I'm fcot being frugal 
enough. 1 hived a man last week 'to do 
nothing Tjut clip coupons.'" 

In this part . . . 

Juyl oney definitely makes the world go around, in life 
www and in business. Home-based businesses are no 
exception. In this part, we talk about transitioning from a 
regular, 9-to-5 career into your own home-based business 
and we discuss the fundamentals of financial management. 
We consider how to price your products or services to 
maximize your return and then examine health insurance, 
retirement, and taxes. 

Chapter 6 

Making the Transition to 
Working for Yourself 

In This Chapter 

Reviewing career transition strategies 
Developing a business plan 
Discovering six financial entry plans 
Identifying 14 sources of startup funds 
Knowing when it's time to move on 

■ Mne of the biggest obstacles that lie in the way of many prospective 
^^ home-based business owners is a very simple but very important ques- 
tion: What are you going to live on while you get your new business off the 
ground? Money doesn't grow on trees, and to ensure the long-term success of 
your business, you've got to start out with sufficient income — from what- 
ever source — to pay your bills. 

Seven out of every ten Americans at some time in their lives decide that 
they want to start and own their own businesses. Yet most don't. Why not? 
Because they are afraid that they don't have enough money to do it. The fact 
is, while certain home businesses may require a significant investment in 
equipment and inventory, many home-based businesses require little or no 
money to start. But aside from startup costs, it does take a lot of work and 
careful planning to build a business that will pay the bills over the long run — 
years into the future. And that's why understanding the right ways (and the 
wrong ways) to transition into your own business is so very important. 

In this chapter, we review the steps for transitioning to a home-based busi- 
ness — specifically, what you should do before you leave your day job 
behind (or before you're laid off, riffed, or retired). We also consider the 
importance of developing a business plan, as well as securing financing (and 
finding the best places to get the money you need). Finally, we take a close 
look at a variety of strategies for exiting your current job and making the 
move to your own home-based business. 

I I/O Part II: Managing Your Money 

Transitioning into \lour 
Home-Based Business 


It's exciting to start your own business. For those who have spent all their 
working lives employed by someone else, it's often the culmination of a 
dream that's lasted for years or even decades. Imagine the power and per- 
sonal satisfaction you'll feel when you realize that you're the boss, that you 
call the shots — from setting your own work schedule, to deciding how to 
approach your work, to choosing your computer and office furniture. 

Believe us, it's a feeling you'll not soon forget. 

But there's a right way and a wrong way to make the move. Your goal is to 
ensure that you maintain a sufficient supply of cash to pay the startup costs 
of your business while paying for the rest of your life — the mortgage or rent, 
car loans, health insurance, gas and electric, and your daughter's piano 

The fact is, few businesses — home based or otherwise — bring in all the 
money necessary to get them off the ground and keep them going for a pro- 
longed period of time within the first six months of operation. In other words, 
you will need a lot of cash — income from a job, from your spouse or part- 
ner's job, savings, loans from friends or family or a bank — to keep both your 
business and your personal life going until the business generates enough 
revenue to take over. 

While you have to decide for yourself exactly what schedule to follow while 
transitioning into a home-based business, unless you're unemployed or 
retired, we generally recommend that you start your business on a part-time 
basis while you're still holding down your regular full-time job. Why? For a 
number of reasons, including the following: 

*<* You can develop and test your new business with virtually no risk — you 
still have your regular job to fall back on if your new business doesn't 
work out (and remember, no matter how great your business idea, there 
is a chance it won't work out). 

u* You won't be under the intense pressure to perform and show the 
results that you would have to show if your new business were your 
only source of income. 

v* You're able to keep your established health insurance, retirement plan, 
leave, and other benefits. Given the difficulty and expense of securing a 
decent health-care plan when you're on your own, and not under the 
umbrella of your employer, this alone may be reason enough to keep 
your day job while you start your own business. 

Chapter 6: Making the Transition to Working for Yourself / (/y 

f" You have a steady source of income to pay your bills as you establish 
your new business. 

v You may be able to take advantage of tax benefits, like the ability to 
write off early losses against income (see Chapter 10). 

V You have a stronger basis for obtaining bank loans and other financing 
for your new business. 

Of course, the decision is ultimately up to you. When starting a home-based 
business, you have to follow your heart and make sure the transition fits into 
your schedule and your life. 

Although you can find good reasons to start your home-based business part- 
time, you may also find grounds to be cautious about such an approach. If 
you need the income of your day job to keep you and your business both 
afloat, you definitely don't want to jeopardize it. 

C* Your regular position may require you to be on the job during the hours 
that would also be the best for your new business. Spending time on 
your new business while working your day job is not only unethical, but 
also could put you at risk of being fired. 

u* You may need to spend more time than ever away from family and friends, 
usually the evenings and weekends that they are accustomed to spending 
with you. 

«-" If you get too little sleep or too few days off, your performance at your 
job may suffer. Underperforming on the job you rely on to pay the bills is 
not the best way to hang onto your paycheck. 

In the following sections, we take a close look at five steps to take before you 
leave your regular job to devote yourself fully to being your own boss. We 
also walk through the different steps involved in the process of establishing 
your home-based business. 

Fii/e steps to take before leaVinq your job 

After you're consistently earning enough income from a part-time business to 
cover your bare-minimum living and business expenses, you're ready to make 
the jump to a full-time commitment of your time and attention. Before you 
turn in your resignation, however, take the five following steps: 

*<* Check when any company benefit plans you have will vest or increase 
in value. If you have a 401(k) or other retirement plan to which your 
employer has been contributing, it may not be fully available to you 
until you have served a particular number of years of service. The idea 
is to give you an incentive to stay with the company for some minimum 
amount of time. Checking this information may help you determine the 

/ / (/ Part II: Managing Your Money 



best time to resign. It would truly be a shame, for example, if you quit 
two weeks before the value of your retirement benefits was set to jump 
from 80 to 100 percent. 

is* Find out when you can expect to receive any bonus money or profit 
sharing. You may, for example, be slated to receive an annual perfor- 
mance bonus or profit sharing a month after the end of the company 
fiscal year. This information can help with the financial planning for your 

is* Get all annual health exams and routine procedures done, and fill all 
prescriptions, while you and your family are still covered by your 
medical/dental/vision insurance. Check to see if your group coverage 
can be converted to an individual policy at favorable rates (some can 
be, although be very careful about changes in coverage, co-pays, and 
deductibles that may actually end up costing you much more money in 
the long run) or what other health coverage options are open to you. 

Don't forget that if you work in the United States, you're likely covered 
by COBRA (the Consolidated Omnibus Budget Reconciliation Act of 
1985), which requires your employer to allow you to continue your iden- 
tical group health coverage for a period of 18 months or more at the 
same rate (probably subsidized by the company) as all other employees 
for comparable coverage. 

*<* If you own a house, take out a home equity line of credit before leav- 
ing your current job. Having a line of credit to draw upon is invaluable 
during the first two years of your new business, and your chances of get- 
ting approved for it are much greater while you're employed in a regular 
job. That's right — after you leave your job, you probably won't qualify 
for a line of credit or other loans for your business until your business 
has been successful for two or more years. 

*<* Pay off or pay down the balance on your credit cards while you still 
have a steady job. This helps your credit rating (always a good thing) 
and provides you with another source of potential funds to help you to 
finance various startup costs (and depending on the nature of your busi- 
ness, you may have plenty of those!). 

Don't make your announcement or submit your resignation until you're 
really, actually, for sure ready to go. Some companies are (sometimes justifi- 
ably) paranoid about soon-to-be former employees stealing ideas, propri- 
etary data, or clients. This can make for a very hasty exit, with a personal 
escort, when you do resign. 

And you don't want to quit and then have to back out of it because you 
weren't really ready to make the move to full-time status with your own com- 
pany. If you have made other announcements that have fizzled for one reason 
or another, your credibility will surely take a dive (ever heard the story about 
the boy who cried wolf?), which can have a negative impact on your working 

Chapter 6: Making the Transition to Working for Yourself / / / 

Your odds are better than you think 

There's been a lot of bad information out there 
about how long businesses (including home- 
based businesses) can be expected to survive 
after founding. Most everyone has heard this 
one: that95 percent of the businesses started in 
any given year will be gone within five years. 

Guess what? It's not true. 

In reality, most home-based businesses survive 
for five years or more after their founding. 
According to surveys conducted by IDC/LINK, 
an average of only five percent of home-based 
businesses drop out each year. So after five 
years have gone by, only 25 percent of home- 
based businesses have dropped out — far less 
than the average for all businesses, which can 
be over 50 percent! How, then, can you ensure 
that your home-based business will thrive and 
not become an unfortunate statistic? 

The Small Business Administration (SBA) has 
uncovered four key indicators of business suc- 
cess. They are as follows: 

*<" Sound management practices, including an 
ability to manage projects, handle finances, 
and communicate effectively with customers 

*<" Industry experience, including the number 
of years you have worked in the same kind 
of business you intend to start and familiar- 
ity with suppliers and potential customers 

*<" Technical support, including your ability to 
seek out and find help in the technical 
aspects of your business 

*<" Planning ability, including an ability to set 
appropriate business goals and targets and 
then create plans and strategies for achiev- 
ing them 

If you, or the combination of you and a partner, 
possess all four traits, the probability of your 
business succeeding is much higherthanif one 
or more of these traits are missing. 

After completing these steps, you're ready to take what may well be one of 
the most significant steps forward you'll ever take in your entire life: starting 
your own home-based business. For those about to embark on this path, we 
salute you! 

OverView of starting a 
home-based business 

In the sections that follow, we go through exactly how to start up your own 
home-based business. We cover these topics in much greater detail in 
Chapters 4, 7, 11, and 12. 

De</e(op a business plan 

Let's be honest: Many home-based business owners can get by without draft- 
ing a business plan. Indeed, though many believe it would be crazy to start 
a business — any business — without sitting down and putting together a 

112 Part II: Managing Your Money 

comprehensive, 50-page-plus business plan to go along with it, business plans 
today are used mostly to obtain financing from third parties such as banks or 
investors. That said, the process of drafting a business plan can be very ben- 
eficial — both to you as a business owner and to your business. It helps you 
do the right things at the right time to get your business off the ground and 
soaring on a path to success. 

A good business plan: 


is* Clearly establishes your goals for the business 

*<* Assists in analyzing the feasibility of a new business and its likelihood of 
being profitable over the long haul 

v* Explores the expansion of an existing business 

*<* Defines your customers and competitors (very important things to 
know!), and points out your strengths and weaknesses 

v* Details your plans for the future 

Even if you think your business is too small for a business plan, it's really 
worth your time to see what it's all about — the process of developing the 
plan for your business will produce a clarity of thought that can't be equaled 
in any other way. See the section "Putting Together a Business Plan," later in 
this chapter, for details on business plan development. 


Consult outside professionals 

As a new home-based businessperson, you want to consider establishing 
relationships with a number of outside professionals — trained and experi- 
enced people who can help you with those aspects of your business in which 
you may have little or no experience. By no means do you have to hire some- 
one from each one of the different categories that follow. But if you run into 
questions that you can't easily answer yourself, don't hesitate to call on out- 
side professionals as you go through the business startup process (and be 
sure to check out Chapter 12 for detailed information on this topic). 

Any professional advice you get at the beginning of your business may well 
save you heartache and potentially expensive extra work down the road. 

is" Lawyer: An attorney's services are an asset not only in the planning 
stages of your business, but also throughout its life. An attorney can help 
you choose your legal structure, draw up incorporation or partnership 
paperwork, draft and review agreements and contracts, and provide infor- 
mation on your legal rights and obligations. Look for an attorney who 
specializes in working with small businesses and startups. 

Chapter 6: Making the Transition to Working for Yourself / #3 

v* Accountant: Consult an accountant to set up a good bookkeeping 
system for your business. Inadequate recordkeeping is a principal con- 
tributor to the failure of small businesses. Regardless of how boring or 
intimidating it may seem, make sure that you understand basic account- 
ing and the bookkeeping system or software you're using and that you 
receive and closely review regularly produced financial reports. The 
business you save may be your own! 

f" Banker: The capital requirements of a small business make it essential 
to establish a good working relationship with a local banker. Bankers 
can approve immediate deposit of a check that would normally be put 
on a 10-day hold, for example. They are good sources of financial infor- 
mation — and for obtaining cash to tide you over when times are tough 
or financing expansion of your business when times are good. 

We recommend establishing a relationship with your banker prior to 
applying for a loan, not after you decide to initiate the loan process. This 
relationship may make the difference between getting approved for the 
loan you need and being turned down. 

u* Business consultants: Every person has talents in many areas, but no 
one can be a master of everything. Consultants are available to assist in 
those areas where you need expert help. You can use business, manage- 
ment, and marketing consultants; promotion experts; financial planners; 
and a host of other specialists to help make your business more suc- 
cessful. Don't hesitate to draw on their expertise when you need it. 

*<* Insurance agent/broker: Many kinds of insurance options are available 
for business owners, and some are more necessary than others. An insur- 
ance agent or broker can advise you about the type and amount of cover- 
age that's best for your business. The agent may also be able to tailor a 
package that meets your specific needs at reasonable rates. If you're 
starting a new business, the insurance company will need in-depth infor- 
mation about your business in order to provide the insurance coverage 
necessary. Insurance for new businesses can be expensive, but the price 
can be well worth it in the event of a covered loss — especially if it's your 
health or that of a loved one. Check out Chapter 9 for more information 
on health insurance. 


The relationships you establish with outside professionals during the startup 
phase of your business can last for years and can be of tremendous benefit to 
your firm. Be sure to choose your relationships wisely. This is a case where you 
often get what you pay for — be penny-wise, but don't suffer a poor-quality 
outside professional simply to save a dollar or two. 

Choose the best (eqa( structure for your Business 

Because they are the easiest kinds and the least expensive, most home-based 
businesses begin as either sole proprietorships or partnerships. But as these 
businesses grow, many explore the transition to another kind of legal entity 

7 / IX Part II: Managing Your Money 


f" Sole proprietorship: A sole proprietorship is the simplest and least regu- 
lated form of organization. It also has minimal legal startup costs, making 
it the most popular choice for new home-based businesses. In a sole pro- 
prietorship, one person owns and operates the business and is responsi- 
ble for seeking and obtaining financing. The sole proprietor has total 
control and receives all profits, which are taxed as personal income. The 
major disadvantages include unlimited personal liability for the owner (if 
the business is sued for some reason, the owner is personally liable to 
pay any judgments against the company) and potential dissolution of the 
business upon the owner's death. 

*<* Partnership: A partnership is relatively easy to form and can provide 
additional financial resources. Each partner is an agent for the partner- 
ship and can borrow money, hire employees, and operate the business. 
Profits are taxed as personal income, and the partners are still person- 
ally liable for debts and taxes. Personal assets can be attached if the 
partnership can't satisfy creditors' claims. A special arrangement called 
a limited partnership allows partners to avoid unlimited personal liabil- 
ity. Limited partnerships must be registered and must also pay a tax to 
the appropriate authorities in their jurisdiction. On the plus side, part- 
nerships allow people to combine their unique talents and assets to 
create a whole greater than the sum of its parts. On the other hand, part- 
nerships can become sheer living hell when partners fail to see eye to 
eye or when relationships sour. 

When entering into any partnership, consult a lawyer, and insist on a 
written agreement that clearly describes a process for dissolving the 
partnership as cleanly and fairly as possible. 

*«* Limited liability company: The limited liability company (LLC) is 

treated as a partnership for U.S. income tax purposes and also provides 
the limited liability of a corporation. This option may be the preferred 
choice for certain new operations and joint ventures. Owners of limited 
liability companies, called members, are comparable to stockholders in a 
corporation or limited partners in a limited partnership. To create a lim- 
ited liability company, articles of organization are filed with the secre- 
tary of state. The members must also execute an operating agreement 
that defines the relationship between the company and its members. 
Not all states have this option available. 

v* Corporation: As the most complex of business organizations, the corpo- 
ration (also known as a C corporation) acts as a legal entity that exists 
separately from its owners. While limiting the owners from personal 
liability, this separation creates a double taxation on earnings (corpo- 
rate tax and personal tax). A corporate structure may be advantageous 
because it allows capital to be raised more easily through the sale of 
stocks or bonds, and it can continue to function even without key indi- 
viduals. It also enables future employees to participate in various types 
of insurance and profit-sharing plans. Costs to incorporate vary from 
state to state — contact your secretary of state for more information. 

Chapter 6: Making the Transition to Working for Yourself / / f} 


A special type of corporation, an S corporation, allows owners to over- 
come the double tax and shareholders to offset business losses with 
personal income; however, if you offset losses for an S corporation 
against regular income, you assure yourself of being audited. 

With C corporations, you need to be certain you aren't classified as a pro- 
fessional service corporation, which is treated much less advantageously 
than other C corporations. 

As you're setting up your new home-based business, take time to carefully 
think through the ramifications of your business's legal structure. Each has 
many potential advantages and disadvantages for your firm, and each can 
make a big difference in how you run your business. If you have any ques- 
tions about which kind of legal structure is right for your business, talk to 
an accountant or seek advice from an attorney who specializes in small busi- 
nesses. Chapters 10 and 11 can also help you sort through the options. 



Decide on a name 

Naming your business may well be one of the most enjoyable steps in the 
process of starting up your own home-based business. Everyone can get in 
the act: your friends, family, and especially your clients-to-be. 

Consider your business name carefully — you have to live with it for a long 
time. Your business name should give people some idea of the nature of your 
business, it should project the image you want to have, and it should be easy 
to visualize. Names can be simple, sophisticated, or even silly. Try to pick 
one that will grow with your business and not limit you in the future. 

Along with a name, many businesses develop a logo, which provides a graphic 
symbol of the business (see Chapter 14 for more ideas). As with the name, your 
logo should be carefully developed to project the image you want. Spend a few 
extra dollars to have a professional graphic artist design your logo for you. 

After you come up with a name, make sure it isn't already in use by register- 
ing it with your local government. (See Chapter 11 for further details.) If you 
don't check first, you may very well have to throw out your stationery and 
business cards and redesign your logo and Web site when you eventually find 
out that another company has your name — and registered it 15 years before 
you did! 

Jake care of the red tape (and it Witt take care of you) 

Taking care of all the local, state, and federal government legal requirements 
of starting up a business is something that too many budding home-based 
entrepreneurs put off or ignore. Unfortunately, ignoring the many and sundry 
legal requirements of going into business may put you at risk. 


Part II: Managing Your Money 

Getting through the maze of government regulations can certainly be one of 
the most confusing aspects of doing business. But though this process may 
be intimidating, it is important to do it — and do it correctly — because non- 
compliance can result in costly penalties and perhaps even the loss of your 
business. Consider this step as one that fortifies the professionalism of your 
business at the same time that it helps you rest easy at night, knowing that 
you're following the rules. Do you want people to take you seriously? Then 
you need to establish your business in a professional way. 



Even very small or part-time businesses have certain requirements. It is your 
responsibility to adhere to any and all regulations that apply to your busi- 
ness. Fortunately, a lot of people are willing and eager to answer questions 
and help you with this task. For your sake — and the sake of your business — 
don't hesitate to ask. 

What kinds of red tape do you need to address? The answer is different for 
every different kind of business, and it's different in every city, county, and 
state. Chapter 11 can help you get started. 

Get the insurance you need 

In today's expensive, litigious world of business, insurance isn't really an 
option anymore — it's an essential. Without it, all your years of hard work 
can be lost in a minute due to a catastrophic loss. 

So what kinds of insurance are needed for your business? Our advice is to 
talk to an insurance agent, and discuss your business and its needs with him 
or her. Some of the most common kinds of business insurance include the 

i^ Basic fire insurance: Covers property losses due to fire. Sometimes 
covers loss of business as well. 

u* Extended coverage: Protects against conditions not covered by fire 
insurance, including storms, explosions, smoke damage, and various 
other disasters. 

w* Liability insurance: Covers claims against the business for bodily injury 
incurred on the business's premises. 

U* Product liability coverage: Insurance against liability for products man- 
ufactured or sold. 

i* Professional liability and/or errors-and-omissions insurance: Protects 
the business against claims for damages incurred by customers as a 
result of providing them with professional advice or recommendations. 

*<* Vandalism and malicious mischief coverage: Covers against property 
losses resulting from vandalism and related activities. 

Chapter 6: Making the Transition to Working for Yourself / / / 


is* Theft coverage: Protection from burglary and robbery. 

is* Vehicle insurance: Covers collision, liability, and property damage for 
vehicles used for business. 

is* Business interruption insurance: Payment of business earnings if the 
business is closed for an insurable cause such as fire, flood, or other nat- 
ural disaster. 

is* Workers' compensation: Disability and death benefits to employees and 
others who work for you, as defined by your state law, who are injured 
on the job. 

i^ Health insurance: We've saved the best (and, for many home-based 
business owners, the most important) for last. Health insurance 
includes medical, dental, vision, and other coverage designed to main- 
tain and promote employee health and wellness and to protect employ- 
ees against catastrophic loss in case of injury or illness. 

A homeowner's policy is usually not enough insurance. First, a typical home- 
owner's policy provides only $2,500 of coverage for business equipment and 
does not insure you against risks of liability or lost income. 

Insurance is the kind of thing that you don't think about until you need it. 
And in the case of insurance, when you need it, chances are you really need 
it! Take time to set up proper coverage now, before it's too late. 

Decide on an accounting system 

Accounting is one of those topics that makes people nervous (with visions of 
IRS audits dancing in their heads), but keeping books doesn't need to be com- 
plicated. In fact, simplicity is the key to a good system for home-based busi- 
nesses. Keep in mind that your records need to be complete and up-to-date 
so that you have the information you need for business decisions and taxes. 

When establishing an accounting system, our advice is to pick up one of the 
excellent computer software programs dedicated to this purpose. Programs 
such as Microsoft Money, Quicken, QuickBooks, and Peachtree Complete 
Accounting do everything your home-based business will ever need — and 

There are two basic bookkeeping methods: single entry and double entry. 
Single entry is simpler, with only one entry required per transaction. This is 
our preferred method for most home-based businesses, and the vast majority 
can operate very well with this system. If you go this route, we recommend 
that you use either Microsoft Money or Quicken. Double entry requires two 
entries per transaction, which provides cross-checks and decreases errors. 
Consider going with a double-entry system if someone else manages your 

I/O Part II: Managing Your Money 

books, if you use your accounting system for inventory management, or if 
you want more sophisticated reporting for analyzing your business. If you 
decide that double entry is for you, we recommend either QuickBooks or 
Peachtree Complete Accounting. 

You can also use two methods to keep track of the money coming in and 
going out of your business: cash or accrual. Most small businesses use the 
cash method, in which income is reported in the year it is received and 
expenses are deducted in the year they are paid. Under the accrual method, 
income is reported when it is earned, and expenses are deducted when 
incurred, whether money has changed hands yet or not. 


The accounting methods you use will depend on your business. You may 
want to talk to an accountant for help in setting up your system. Even with 
the support of a professional, you should understand your own system 

Many home-based businesses can get by without detailed financial reporting 
or analysis — after all, if you can keep up with your bills and perhaps have a 
little bit of money to sock away in your savings account, you must be making 
money, right? If you really want to understand your business's financial situa- 
tion, though, you need some basic financial reports. The following financial 
statements are the minimum necessary to understand where your business 
stands financially. With them in hand, you'll be able to review your business's 
financial strengths and weaknesses, and make accurate plans for the future. 

w* Balance sheets: A balance sheet shows the worth of the business — the 
difference between its assets and liabilities. If you shut down your busi- 
ness today, paying off all your bills and loans and liquidating your 
assets, would you have any cash left over? 

t-" Profit-and-loss statements: Profit-and-loss (P&L) statements show you 
the difference between how much money your business is bringing in 
(revenue) and how much money it is spending (expenses). If you're 
bringing in more money than you spend, you have a profit. If you're 
spending more money than you bring in, you have a loss. 

*«* Cash-flow projection: Cash-flow projections tell you where your money 
is going and if you're likely to have sufficient money each month to pay 
your bills and operate the business. For many startup companies — 
especially those with employees, rent, and other significant recurring 
expenses — a cash-flow projection is the most important financial state- 
ment of all. 


Years after starting his home-based business, Peter still keeps a detailed cash- 
flow projection that shows expected revenues — by client — on a monthly 
basis for an entire year. Shortfalls that can be dangerous to his personal finan- 
cial health can be seen far in advance, and Peter can address them before they 
become major problems. 

Chapter 6: Making the Transition to Working for Yourself J J y 

For much more detailed information about these and other financial matters, 
including the use of financial ratios to gauge the financial health of your busi- 
ness and a much more in-depth look at accounting software packages, be 
sure to check out Chapter 7. 

De</e(op a marketing plan 

It's not enough to start a business and then patiently wait for customers to 
walk in your door; you need to let potential customers know about your new 
business, get them in to have a look, and then encourage them to buy your 
product or service. Marketing is all of this and more. Your specific approach 
to marketing depends on your business, your finances, whom you're trying to 
reach, and your goals. 

Marketing sells your products and services, which brings in the cash you 
need to run your business. Marketing is so important that it deserves a plan 
of its own. A marketing plan helps evaluate where your business currently is, 
where you want it to go, and how to get there. Your marketing plan should 
also spell out the specific strategies and costs involved, and it can be inte- 
grated into your business plan as one comprehensive section. As with the 
business plan, it should be referred to regularly and updated as necessary. 

Successful marketing for a small or home-based business doesn't happen all 
by itself. It requires a lot of work and careful analysis and is a terrific opportu- 
nity to use your creativity and hone your business sense. For lots of informa- 
tion on marketing your home-based business, be sure to check out Chapter 4. 
For even more information on the topic, pick up a copy of Paul and Sarah's 
book Getting Business to Come to You . . . A Complete Do-It-Yourself Marketing 
Guide for Attracting All the Business You Can Enjoy (co-authored by Laura 
Clampitt Douglas, Putnam Publishing Group) and Small Business Marketing 
For Dummies, by Barbara Findlay Schenck (Wiley). 

Seek out assistance When you need it 

An almost unlimited number of organizations and agencies — private, public, 
and not-for-profit — are ready, willing, and able to help you work through the 
process of starting up your home-based business. The following list is just 
the beginning. 

Check out the Web sites of each of these organizations for an incredible 
amount of free information and help: 

*«* Small Business Development Centers: 
«-" SCORE (Service Corps of Retired Executives): www 
W Chambers of Commerce: http: // chamber -of -commerce, com 
v Minority Business Development Agency: www . mbda .gov 
t-" Federal Business Opportunities: www.f edbi zopps . gov 

/ 20 Part II: Managing Your Money 

*«* Small Business Incubation Association: www 

«-** Small Business Administration (SBA), Starting a Business Site: http : // 
sba .gov/starting_busi ness/index.html 

W Small Business Innovative Resource Center: 

u* SBA Small Business Training Network: 

*-" Business plans: www. sba on 1 ng_busi ness/ 
pi anning/basi c. html 

v* Information on choosing a form of business: www. tool 

v Business names: www. tool 800. asp 

V U.S. Patent and Trademark Office: 

Six Ways to Get the Cash Flou/iny 

Every new business starts at the beginning. No matter how much experience 
you have in your current job or how many other businesses you may have 
started in the past, when you create a new home-based business, you're 
starting from scratch. In the beginning, every sale counts, and building finan- 
cial momentum quickly is the primary goal. The faster you get cash coming 
into your business, the sooner you're able to leave your 9-to-5 job behind and 
dedicate yourself fully to your own business. 

Beginning part-time With 
your new business 

When you start your own business, you will usually have a choice to make: 
Keep your day job or quit. As we mentioned earlier in this chapter, it's our 
recommendation that you keep your regular job for as long as you can while 
building your own business part-time. At some point — after your own busi- 
ness has built up a sufficient clientele — you can leave your regular job and 
devote yourself fully to your home-based business. And if your own business 
fails for whatever reason in its early stages, you still have your regular job to 
fall back on. 

Working part-time at your old job 

If you have enough work in your home-based business, but not enough to 
make it your full-time vocation, consider working part-time in your regular 
job. Depending on your particular situation, your current employer may be 

Chapter 6: Making the Transition to Working for Yourself f 2 1 

willing to be flexible with your schedule. It's often better to keep a good 
employee part-time than lose her or him altogether. 

Turning your employer 
into your first client 

If you're really good at what you do, what better way to get your business off 
the ground than to do work for your current employer on a contract basis? 
Not only will your employer have the benefit of your expertise while con- 
tracting with a known entity, but you can also develop your business while 
working with people you already know, using systems and procedures you're 
already familiar with. 

Take care, however, to clearly separate yourself from your former employer 
as an independent contractor rather than continuing to work in the role of 
employee. If you don't make this distinction clear, any tax deductions you 
have taken for your home-based business may be disallowed by the IRS. See 
Chapter 10 for a discussion on how to ensure that you're on the right side of 
this fine line. 

Taking business With you (ethically!) 

Although it's unethical to steal clients away from a previous employer (not 
only that, but it also may very well land you in court, forcing you to pay an 
attorney a lot of money to get you out of trouble), you may be able to get 
your employer's blessing if you let them know what you would like to do. The 
advantage of taking clients with you to your new business is that you already 
have a strong working relationship in place. This is of great benefit to your 
new business and to your clients. 

Financing your business 
With startup funds 

It takes money to start a business — any business. By lining up sources of 
startup funds, you're able to ease the financial entry into owning your own 
home-based business. There are probably more potential sources of startup 
funds than you can ever imagine. In the section "Sixteen Sources of Startup 
Funds" later in this chapter, we let you in on the best sources. 

722 Part II: Managing Your Money 

Bringing a partner into your business 

Q: I am looking for a business partner for my 
company. I wondered if you had any sugges- 
tions on how to find one. 

A: The best business partner is someone with 
whom you have a long track record of working 
well — someone with whom you share common 
goals and philosophies and compatible work 
styles. The more experience you've had working 
together, the better. Butdon'tdespair if you can't 
find anyone from your existing pool of contacts 
to team up with. You can find partners by net- 
working through professional and trade organi- 
zations or by getting referrals from others whose 
judgmentyou value and respect. Here's what we 

j-" Don't go directly from stranger to business 
partner. That's like getting married on the 
first date. Instead of telling people you're 
looking for a business partner, put the word 
out that you're looking for an associate to 
run a joint venture with. This initial joint ven- 
ture should be a short-term or discreet pro- 
ject that gives you a chance to get to know 
a prospective partner and see if you have 
the chemistry to work well together. 

j-" Ask for referrals from those in a position to 
know people who will meet your criteria: 
the officers of a trade association, the pres- 
ident of the chamber of commerce, the 
editor of the trade journal, or a valued sup- 
plier or client. You can network with such 
individuals online as well as in person. 
These days, you need not limit yourself to 
teaming only with colleagues in your locale. 
Many people are successfully using e-mail, 
fax, and the telephone to team up with 
associates anywhere in the country or even 

As you talk with people about the possibility of 
collaborating on an initial venture, lookfor com- 
patibility in the following areas: 

*<" Strengths that are complementary 

*<" Honesty 

*<" Fairness 

C" Aesthetics and etiquette 

*<" Personal integrity 

*<" Attitudes about family/work priorities 

*<" Money and financial matters 

*<" Timeliness and punctuality 

*<" Quality and educational level 

*<" Manners and treatment of others 

*<" Attitudes about your profession or business 

Take note of any red flags. If anything like the 
following comes up in initial conversations, 
watch out! 

*<" A history of financial problems 

*<" A history of combative relationships or 

*<" Soap opera tales of woe with previous part- 
ners or joint ventures 

*<" Here-and-now behavior, such as being late 
to meetings or frequently putting down 

*<" Unwillingness to put plans and agreements 
in writing 

When you find someone you click with, do sev- 
eral short-term projects or jointventures together 
before committing to a formal, legal partnership. 
Make sure that your initial assessment is accu- 
rate and that you can, in fact, trust your partner 
and work well together. 

Chapter 6: Making the Transition to Working for Yourself / £j 

Piggybacking With your spouse 
oy significant other 

If you're married or live with a significant other, he or she can continue to 
work his or her regular job, providing a steady paycheck, benefits, and more, 
while you start your own home-based business. Although your overall 
income will be reduced until such time as you're able to crank up your sales, 
this way you have the shelter of a secure job and benefits. Such a shelter can 
save you a lot of sleepless nights, allowing you to focus your attention where 
it's most needed — on building your business. 

Sixteen Sources of Startup Funds 

The number-one concern of most people who are planning to start their own 
home-based businesses isn't what kind of business they are going to start, 
where they are going to start it, or how they are going to market their prod- 
ucts and services. It's not who their customer is going to be, who their com- 
petition is, or whether or not to involve a spouse in the business. It's money. 
More specifically, it's where to get the money needed to start up a home- 
based businesses. 


It takes money to make money, and this is especially true when starting up a 
new home-based business. With cash, you can buy the things your business 
needs to operate and stock up on the inventory of products that you will sell 
to your customers and clients. 

But where does this money come from, and what are the best ways to pull 
together the cash you need to start up your home-based business? Here are 
16 of our best suggestions: 

i** Personal savings: Savings accounts are probably the first place that 
most home-based business owners turn to when looking for cash to 
start up their new businesses. And why not? You get instant loan 
approval — no matter how good or bad your credit report may be — 
and you can't beat the interest rate of percent! 

i^ Credit cards: More and more often, home-based business owners are 
turning to credit cards as a source of cash for business startup. A word 
of caution: Beware of extremely high interest rates and extra fees for 
cash advances. If you do decide to use a credit card for your business, 
try to get one dedicated solely for business expenses. You'll have an 
easier time figuring your taxes for the year. 

l2u Part II: Managing Your Money 


is* Retirement funds: If you're currently working a full-time job, you probably 
have some sort of retirement fund established. This fund is as good as 
gold, and you can apply the cash within it to help you start up your new 
business. There are a couple of problems, though, with early distributions 
of retirement funds. First, Uncle Sam is probably going to penalize you for 
doing so (check the rules for your particular kind of retirement account) 
and will then add insult to injury by taxing you on the income you pull out 
of your fund. Second, if you wipe out your retirement account, you have 
nothing to fall back on if your business fails (not to mention nothing to fall 
back on when you're ready to retire). 

is* Barter: Okay, while not strictly a source of cash, bartering with others — 
trading your products or services for theirs — can be a terrific way of 
getting the things you need to get your business off the ground. Need a 
computer? If you are starting a massage business in your home, for exam- 
ple, we'll bet you can find someone who would love some massages in 
trade for a computer that they're no longer using. 

Craig's List (www. 
a try. is a great place to give bartering 

is* Disability grants: If you've been granted a disability payment because of 
an on-the-job injury that prevents you from pursuing your former voca- 
tion, the cash you receive may be useful for beginning a new career — a 
career at home. 

is* Inheritances: Although inheritances may be subject to taxation depend- 
ing on exactly how much you inherited and in what way (check with a 
tax adviser for all the details), you may still be left with a substantial 
amount of funds that can be applied to starting up your new business. 

*<* Credit unions: Because credit unions are member-owned, they often 
offer better interest rates than do regular banks or other financial insti- 
tutions. If you belong to a credit union, be sure to try there for a loan 
first. Keep in mind, however, that credit unions are generally even more 
adverse to risk than regular banks, so your credit will have to be very 
strong for you to have a chance of getting the money you'll need. 

/>" Funds from investors: Many new companies rely on cash from investors 
to fund their startup and initial operations. Be aware, however, that 
when you accept money from investors, you probably have to give them 
something in exchange. That something is usually equity in the com- 
pany. And with equity goes the power to have a say in how the business 
is run. If you don't want anyone telling you how to run your business, 
this may not be the best way for you to pull together funding for your 

is* Life insurance policies: Depending on the kind of life insurance policy 
you have (term, cash value, and so on), you may be able to cash it in or 
take out a loan against it. Read the fine print of your policy or consult 
your insurance agent to see if you have this option. If you've had a cash- 
value policy for a long time, you may be pleasantly surprised at how 
much money is available to you for your new business. 

Chapter 6: Making the Transition to Working for Yourself / £j 

v* Home equity line of credit: If you have a home and have built up equity 
in it (the value of the home over and above what you owe for it), you 
may be eligible for an equity line of credit. These have several great 
advantages: You don't pay any interest or payments unless you actually 
borrow against your line of credit (you may have to pay some sort of 
loan origination fee, however, to set up the line of credit); loan terms are 
often much longer than standard loans — up to 15 years or more; and 
the interest you pay is tax deductible. On the downside, you have to put 
your home up as collateral — if you default on your loan, you may lose 
your house. All in all, however, it is a smart way to finance your new 

u* Loans from friends and family: When aspiring home-based entrepre- 
neurs don't personally have the resources to finance their new business, 
friends and family are often the first potential source of funding they 
turn to. As long as your request for a loan doesn't cause your relation- 
ships to sour, loans from friends and family can be a great way to put 
together the financing you need. Be sure to treat relatives and friends as 
you would any business relationship, using signed, written documents 
with clear terms and conditions. 

u* Loans from suppliers or colleagues: You believe in yourself, right? If 
your idea's a good one, chances are others will believe in you, too. Drop 
the hint that you're looking for money to finance your new business, and 
you may well find yourself with the cash you need to get started. 

*<* Local seed-money funds such as one sponsored by the Amarillo 
Economic Development Center: Many local governments offer seed 
money to help finance new businesses in their communities. Check 
with your local small business office to see what's available in your 

v* Selling personal assets such as a boat, extra vehicle, camper, and so 

on: Think: big yard sale, eBay, www .craigsl, or your local clas- 
sified ads. 

*<* Microloan programs: The government and a number of foundations 
offer a variety of microloan programs, particularly targeted to women 
and minorities. Check with your local Small Business Administration 
office to find out what's available and whether you qualify. 

*<* Reduced tax withholdings: If you aren't taking any exemptions on your 
income tax withholding at work, you can unlock an instant stream of 
cash by increasing your exemptions in line with the deductions that you 
expect to have available when you file your annual income taxes. Simply 
follow the instructions on the IRS form or consult your accountant for 
more information. 


Part II: Managing Your Money 

Finding money on the Web 

A number of places on the Web offer cash to 
finance your home-based business. Garage, 
com (www .garage, com), for example, matches 
investors who have the cash with home-based 
businesses that need it. And not only does it 
match up investors with home-based busi- 
nesses, but it also schedules conferences (often 
called boot camps) on how to start a home- 
based business and how to attract financing. 
Has this unique source of business financing 
attracted any interest? In a word, yes. According 
to the company president. Bill Reichert, the 
initial expectations in terms of the number of 

business plans they would receive was off by a 
factor of ten. They were overwhelmed by the 
number of entrepreneurs who came to them. 

Here are some other good places to look: 



k" www.nvca .org 

k" www.nvst .com 


You can find all kinds of different ways to put together the money you need to 
start up your home-based business. One thing to keep in mind: Keep your bor- 
rowing as low as you possibly can. And when you do borrow money, borrow 
only for items that will pay you right back. For example, if you start a home- 
based gardening business, a $500 investment in a professional-grade lawn 
mower will no doubt be quickly recouped — perhaps in only a month or two of 
work. A $500 investment in an office desk, however, may take years to recoup. 
The best approach is to minimize the amount of money you need to come up 
with to start up your business. If you already have a computer, and you already 
have some sort of office set aside, you may have all the tools you need to get 
your desktop-publishing business off the ground. 

Before you run out and buy that snazzy new company car, computer, or mod- 
ular furniture unit, ask yourself if the old one won't serve you just as well for 
another year or two. It may not be as exciting as shopping for something new, 
but the money you save can be put to better use generating income for the 
business. And in a home-based business, generating income for the business 
means generating income for you. 

For much more information on raising money for your new business, be sure 
to check out Peter's book (with co-author Joseph Bartlett) Raising Capital For 
Dummies (Wiley). 

Putting Together a Business Plan 

Every great business begins with a plan. Whether it's written on the back of a 
napkin or fills hundreds of pages with full-color charts and photos of happy 

Chapter 6: Making the Transition to Working for Yourself I 2/ 

customers, a plan helps prioritize and direct the actions you take to start up 
and run your business. And while formal business plans are used less often 
nowadays than they were in the past (today business plans are usually put 
together for the benefit of loan officers at banks and potential investors), the 
process of putting together a business plan for your home-based business is 
an education in itself — one you'll get nowhere else. 

Though you have some flexibility in determining the exact format of your 
business plan (especially if it's an informal one that's strictly for your own 
use), if the intent is to use the plan for securing financing from a bank or 
investors, they expect to see certain information presented in specific ways. 
This allows them to make informed judgments on the viability of your busi- 
ness and its potential for growth and profitability. 

A formal business plan should contain, at minimum, the following elements: 

*«* Mission statement: The company's mission statement sets the tone for 
the business, relating it to its values and goals. Mission statements are 
inspiring and serve to galvanize the actions of employees toward attain- 
ing the company's goals. Paul and Sarah's mission statement fulfills all of 
these criteria: "We're authors, broadcasters, and facilitators. Our mis- 
sion is to explore new and better ways of living and working through the 
interface of nature and technology." Peter's mission statement is "The 
best books, on time, and on dollar." 

is* Description of the company's products and services: This is a complete 
description of all the products and services that the company presently 
offers and plans to offer in the future. If your home-based business spe- 
cializes in producing the best wedding cakes in the tri-state area, using 
the latest in confectionery technology, this is the place to lay it all out. 
Be complete — leave nothing to the imagination. 

is* Market analysis: If you have already put together a marketing plan for your 
business, you already have the material you need to fill out this part of 
your business plan. The market analysis takes a close look at the markets 
in which you intend to sell your products and services, and details the 
number of potential customers, the potential growth rate of the market, 
information about your competition, and particulars of your marketing 
strategies. See Chapter 4 for a complete analysis of a marketing plan. 

l** Financial projections: Do you plan to go from $100 a month in revenues 
to $100,000 a month? This is where you present your financial projec- 
tions, including revenues, expenses, and profit or loss. Plan to include 
the three basic financial statements — a balance sheet, a profit-and-loss 
(P&L) statement, and a cash-flow projection — and be ready to back up 
your guesses and prognostications with hard data. 

l** Management strategies for achieving company goals: You have your prod- 
ucts and services, your marketing strategies, and your financial projec- 
tions. Now, exactly how do you intend to achieve your goals? This section 
presents the details of the strategies you select to achieve your company's 
goals and lays out when and how you go about achieving them. 

I 28 Part II: Managing Your Money 


Farming out your business plan 

Q: I wantto start a business, but the bank needs 
a business plan before I can get a loan. I don't 
know how to write a business plan and am not 
good at writing. Is there a service that can write 
one for me? 

A: Absolutely. You can hire a professional busi- 
ness plan writer. Your bank loan officer may be 
able to recommend one to you or you can find 
one online. Many business plan writers now 
have their own Web sites. You can also look for 
business planning consultants at www. bpl ans . 
com/pc — look for someone who has general 
business background in the areas of accounting. 

bookkeeping, and marketing, and familiarity with 
financial statements, business jargon, and your 
local business community. Definitely ask for sam- 
ples of their work, and if possible, have your bank 
loan officer review the samples to be sure they 
are of the type and quality the bank is seeking. 

Professionals can generally prepare a business 
plan in two to four weeks. Fees range from 
$2,500 to $5,000, depending on the time needed 
to research needed financial data, analyze the 
competition, develop sample marketing plans, 
and so forth. 

Although space doesn't allow us to present a sample of a formal business 
plan within these pages, you can view several at www. 
Also check out Business Plans For Dummies, by Paul Tiffany and Steven 
Peterson (Wiley), for details on writing a successful business plan. 

Knourinq When to Mai/e On 

Every great businessperson — whether he or she owns a one-person, home- 
based business or is the CEO of a Fortune 500 company — knows when it's 
time to dig in and fight the good fight and when it's time to move on or 
change direction. Despite all your careful planning, product development, 
marketing and business strategies, and the time you devote to making your 
business the best it can be, sometimes it's just not the right time or place for 
your business. (Where, for example, have all the Y2K consultants gone?) 
Other times, the business isn't right for you. 

The need to move on and try something different can be motivated by a 
couple of different elements: 

*-" Are you ready to be in this particular business? Starting a business is 
quite a bit more complicated than simply quitting your day job, moving 
into your new business, and making lots of money. Are you ready for 
the long hours and sacrifice that are required to be successful? Chances 

Chapter 6: Making the Transition to Working for Yourself I 2y 


are you'll work far more hours than you ever worked when you were 
employed by somebody else. Did you choose the right business? Your 
choice of a business should be the result of extensive research and soul 
searching, not just what seems to be a nice idea at the time. If, for what- 
ever reason, you're not ready to be in this particular business, you may 
need to move on to the kind of business you're ready for. 

*<* Is the market ready for your product or service? You may well have the 
greatest product or service since the invention of the hot glazed dough- 
nut. Unfortunately, if the market isn't yet ready for it, or if the market is 
ready but isn't large enough to generate the sales you need to stay 
afloat, it may be time to move on. The key is to recognize this problem 
quickly so that you can take action before your personal finances are 
depleted and you're left with nothing. 

How to patent your ideas 

Q: I would like to sell patented ideas to compa- 
nies that manufacture similar products. But 
because I don'thave a lot of disposable income 
or collateral, how do I finance my patent 
searches and applications? Also, when I write 
to companies about my ideas, I get rejection let- 
ters or no response. How do I get into compa- 
nies to sell them my ideas? 

A: Patent attorney and author David Pressman 
recommends waiting before sending letters to 
manufacturers until you have completed a thor- 
ough patent search and submitted your patent 
application. You can hire a professional searcher 
for under $1,000, but if you're a conscientious 
worker and have the time, you can do your own 
search. Pressman outlines this in his book 
Patent ItYourself. Another bookfocused entirely 
on patent searching is David Hitchcock's Patent 
Searching Made Easy. You can begin your 
search on the Internet at www. 
patft or at a Patent and Trademark Depository 
Library in your state. A list of Patent and 
Trademark Depository Library sites can be found 
at the Patent and Trademark Depository Library 
Program (PTDLP) page on the US Patent and 
Trademark Office Web site at www . uspto . gov. 
For patents issued before 1971, you will need to 
go to a depository library. 

You still have some expense, however, because 
afteryou've completed your search, each patent 
application fee costs $385. After an application is 
filed. Pressman recommends finding and writing 
to suitable companies. Most, he says, respond 
with a form letter requesting that you sign an 
enclosed waiver form. Some people do offer to 
sell their patented ideas for a lump sum, but he 
finds that most seek instead to license their 
ideas, usually for around 5 percent of sales. 

Pressman urges that you not get involved with an 
invention development company. These compa- 
nies offer to review your ideas and then charge 
an inflated price to complete a search for you. If 
you'd rather be just the idea man and leave the 
financing, model building, searching, and filing to 
others, we suggest putting together your own 
developmentteam. Ideally, you have contacts to 
draw upon for such a team from your experience 
in the fields related to whatever ideas you're 
developing. If not, you can begin making such 
contacts by networking through professional 
organizations either face-to-face or online. 

For additional information on obtaining a patent, 
contact the U.S. Patent and Trademark Office, 
Washington, DC 20231, (703) 308-HELP or 

www. uspto .gov. 

73v Part II: Managing Your Money 

Whatever you do, when you recognize that it's time to move on, do just that. 
You can find plenty of other opportunities, and you're far better off looking 
sooner rather than later. 

Chapter 7 

Keeping Track of Your Money 

In This Chapter 

Separating your business and personal finances 

Setting up a business bank account 

Deciding on a bookkeeping system 

Watching your finances 

Understanding invoicing, collections, and cash flow 

Establishing credit 

They say that money makes the world go around, and nowhere is this 
truer than when you own and operate your own home-based business. 
As you quickly learn, if you have cash, you can get almost anything done. 
Unfortunately, the opposite is also true; if you are constantly short of cash, 
you may find keeping your business afloat to be a major challenge. 

Financial management is therefore one of the key points of focus for any home- 
based business, and proper financial management requires a good system of 
bookkeeping, as well as constant attention to the numbers. Your business's 
finances are not something you should leave to chance. In this chapter, we take 
a look at how to manage your finances so that your finances don't manage you. 

Orqanizinq \lour Finances 

In most large organizations, tracking cash — where it comes from, where it 
goes, and how it is used — is one of the most important administrative func- 
tions. Cash serves many functions in a business: It's a way to keep score, a 
way to measure the profit generated by different products and services, and 
a way to reflect the equity built by the company's investors and owners. And 
not only does cash serve as a yardstick for performance, but it also is the 
way that companies pay employees and purchase supplies and services. 

I j2 Part II: Managing Your Money 

Will you need an accountant? 

Will you need an accountant to help you keep 
track of your business's finances? The answer 
to this question depends on how capable you 
personally are in handling your own bookkeep- 
ing, accounting, taxes, and financial strategies, 
and on how complicated your business is. Some 
business owners love to take care of the admin- 
istrative tasks involved in running their own 
businesses; others hate it. And some home- 
based businesspeople are naturally skilled at 
doing financial tasks, while the talents of others 
are better suited to delivering products and ser- 
vices to their customers. In addition, doing your 
own bookkeeping and accounting takes time 
and discipline — records need to be updated 
regularly and periodically checked for errors. 

If, for example, your finances are fairly simple, 
you're computer savvy, and you have sufficient 
time and interest to keep your records up-to- 
date by yourself, you can use a software pack- 
age such as Quicken, Money, or QuickBooks to 
do your bookkeeping. Simply input your receipts 

and expenses, and the program performs every 
accounting function and trick you could ever 
imagine. You'll be able to generate all kinds of 
financial reports and graphs (something your 
lenders will want to see, should you need to 
borrow money to grow), write checks, and col- 
lectthe information you'll need to do yourtaxes. 

If, however, your business isn't simple, or if 
you've got a unique business setup (for exam- 
ple, if your home-based business is a C corpo- 
ration instead of the more common sole 
proprietorship), getting the help of a profes- 
sional bookkeeper or accountant may be worth 
your time and money. When looking for profes- 
sional assistance, avoid choosing someone out 
of the Yellow Pages — you just never know 
what you're going to get. Askyour home-based 
business friends in the area for referrals to a 
good accountant or bookkeeping service — 
preferably one that specializes in handling busi- 
nesses like yours. 

Indeed, cash is the focal point of most organizations 
When you have a small home-based business, cash — 
can quickly make or break you. 

- both large and small, 
or the lack thereof — 

Why should you worry about keeping your business finances organized 
anyway? Isn't that shoebox that you keep your receipts in sufficient for your 
home-based business, as long as you have enough money to pay your bills 
and yourself? Not quite. There are four main reasons for keeping your 
finances organized and accurate: 

*«* You need adequate financial information to know where your business 
stands — whether it is profitable or losing money and whether expenses 
are out of line with income. 

*«* You need adequate financial information about your business to apply 
for loans and receive credit from vendors and suppliers. 

Chapter 7: Keeping Track of Your Money / jj 

t-" You need adequate financial information to prepare your federal and 
state income taxes. 

*«* You need adequate financial information to provide to interested buyers 
in the event that you decide to sell your business. 

Can your shoebox do all that? 

Setting Up a Business Account 

When setting up your company's finances, the first step is to establish a sepa- 
rate bank account for your home-based business. While the Internal Revenue 
Service doesn't require that you separate your business finances from your 
personal finances, take our word for it: It sure makes things a lot easier when 
you prepare your taxes. Without this separation, you can spend hours and 
hours trying to first identify the business expenses in your personal checking 
account or credit card receipts and then pulling them out and classifying 

At minimum, you need a checking account, although a savings account and 
even a retirement account may be a good idea, too. Setting up a new checking 
account is easy, particularly if you've already established a personal account 
at the bank or other financial institution that you select. Drop by your friendly 
local bank, fill out a form or two, deposit a bit of money (or transfer it from an 
existing account), and pick out your check design. In minutes, you'll be all set. 

If you set up a new account in the name of your business (not in your own 
name) — particularly if the account is not with the institution where you do 
your personal banking — you may find that the bank will place holds on 
checks you deposit over a certain amount of money, say $500 or $1,000, 
making your funds inaccessible until they clear the originating bank. These 
holds can remain in place for a couple of days to a week or more, and need- 
less to say they can cause you and your business major problems if you need 
your cash right now. The good news is that after your business establishes a 
record of stability (a process that may take anywhere from a few months to 
a year or more), the requirement to put holds on deposits to your business 
account will probably be lifted. If not, be sure to ask your bank manager to 
lift it. 

One more thing: Consider applying for a credit or debit card that you use 
only for your business. Visa, MasterCard, Discover, and American Express all 
offer cards that are specifically geared to the unique needs of small business 
users. They can provide quarterly spending reports by employee — breaking 
down your charges into specific categories such as retail, restaurant, lodging, 

IjU Part II: Managing Your Money 

and telecommunications — and give discounts on business services, 
extended warranties on equipment purchased with the card, and many other 
benefits. Debit cards issued with a VISA or MasterCard insignia are particu- 
larly flexible because they can be used as either debit (or, often, ATM) cards 
or as credit cards, depending on the situation and on your personal prefer- 
ences. The choice is yours. 

Accepting Credit Card Sates 

If you sell products, you probably also want to be able to accept credit card 
payments. In fact, as a way to improve your cash flow, you may want to 
require that your clients pay you by credit card before you deliver their prod- 
uct orders or services. 

While many home-based businesses don't need to be able to accept credit 
card payments, others — particularly home-based businesses that sell prod- 
ucts — do. If you have the kind of business that's suitable for taking credit 
card sales — perhaps you sell dollhouses, computers, or rare records 
through your Web site — you'll have many of the following advantages when 
accepting credit cards: 

**" Accepting credit cards is a convenience for your customers — particu- 
larly those customers who would rather not wait to send a check or pay- 
ment through the mail before you ship their orders. 

J-" People who use credit cards to purchase items tend to spend more 
money per transaction (250 percent more on average, according to 
some sources) than non-credit card customers. 

is* You get your cash from the transaction much more quickly than if you 
invoice your customers and let them pay later, improving the cash flow 
of your business. A credit card payment is immediately directly 
deposited into your bank account. 

j-** Internal paperwork due to invoicing customers and following up on 
delinquent payments is reduced or eliminated. 

*<* Accepting credit cards makes your business appear more established 
and credible than businesses that don't accept credit cards. 

Being able to accept credit cards is definitely a good thing. As with many 
other good things in life, however, accepting credit cards isn't free. In fact, 
you have to pay for the privilege. 

How much? The answer depends on who processes your transactions and on 
the overall dollar amount of the transactions that you submit for processing. 

Chapter 7: Keeping Track of Your Money / jj 

Here are typical costs to expect: 


W Setup charges including application fees: around $300, plus software 
licensing fees and equipment purchases if you need a point-of-service 
terminal instead of just using your computer's Internet access. 

u* Transaction fee: a flat fee charged for each transaction that may range 
from $0.20 to $0.50 per transaction. 

*<* Discounts: a percentage taken from each order, ranging from less than 2 
percent to 5 percent or more. 

U* Monthly charges: including a statement fee, a monthly minimum if the 
discount and transaction fees don't equal a monthly minimum, and leas- 
ing fees if you lease instead of buy equipment. 

Accepting credit cards is definitely not a free service, but if the level of your 
sales justifies it, it's a small price to pay — and could be offset by the price of 
just one or two bad checks. 

Establishing a merchant account 

Before you can accept credit cards, you have to find a bank, credit card com- 
pany, or other financial institution that will grant you merchant status or allow 
you to open a merchant account — that is, authorization to accept credit card 
payments. This process is not quite as easy as you may think; in fact, for a 
new business or one that's considered to be risky by credit card companies, 
it can be downright difficult. Here is a list of the kinds of businesses that are 
considered particularly risky by credit card companies (and that may make 
getting approval more difficult): 

«^* Adult Web sites 

*«* Dating services 

W Limousine/taxi services (independents) 

W Online casinos 

v* Massage services 

v* Mall kiosks (seasonal/independent) 

U* Ticket brokers 

If you've been in business for some time (at least two or more years), you're 
not involved in a particularly risky business, and you have a good credit his- 
tory, you should have no problem getting merchant status. Of course, until 
you apply, you'll never know. 

73 v Part II: Managing Your Money 


Finding a way to accept customers' credit cards 

Q: I own a home-based mail-order company 
that sells computer and electronic equipment, 
and uses manufacturers that ship directly to my 
customers. To increase business, I tried to get 
a merchant account so I can take MasterCard, 
Visa, Discover, and American Express. My aver- 
age ticket will be about $3,000 and monthly 
should be $20,000. The problem is, the banks 
wantto hold 50 percent of each creditcard pay- 
ment for a month. That would put me out of 
business. Is there a way around this? 

A: Yes. First, recognize that there are different 
requirements for accepting payments with a 
creditcard online than for traditional merchant 
account sales. If you can't find a bank that will 
work with you, consider finding a broker. 
Brokers call themselves such terms as inde- 
pendent sales organization (ISO) and merchant 
account provider {MAP). A broker acts as an 
intermediary between small businesses and 
banks. You will most likely pay more using an 
ISO, because these companies derive their 
income from fees and surcharges added to 
what you would normally pay if you were able 
to deal directly with a bank. Add-on costs 
include such things as application fees, leasing 
costs for card swipe machines, transaction 
charges, statement fees, voice verification fees, 
and so on. But ISO fees vary considerably, so be 
a shopper. Just be sure to read any contracts 
carefully for hidden charges and requirements. 

They are becoming increasingly popular and 
competitive with banks. 

You may also be able to get better terms going 
through a membership organization or com- 
pany, such as Costco, that provides access to 
merchant accounts. 

A third way to go is to use a third-party proces- 
sor, which links directly from your Web site's 
order page to the third-party processor. The 
third party makes you an agent, with the third- 
party processor actually being the legal entity 
that makes the sales. Some third-party proces- 
sors also provide fulfillment functions such as 
providing live telephone operators and packing 
and shipping the goods. 

Also consider trying the credit card compa- 
nies directly. Both Discover/Novus (www. American Express 
(www. ameri can express .com) accept appli- 
cations for merchant status through the mail 
or online. 

One caution: Some companies are falsely rep- 
resenting themselves as ISOs, and eager mer- 
chants have been scammed. To determine 
whether the ISO you're talking with is legitimate, 
ask for the bank the ISO is affiliated with, and 
contact itto verify the status of the ISO. You can 
also check with your local Better Business 


Different companies charge vastly different prices to create and maintain a 
merchant account for you. Do your research thoroughly, and compare prices. 
And carefully read any contract or agreement you're asked to sign. If you 
have any questions, it may be worth your time and money to have a lawyer 
review it for you. 

Chapter 7: Keeping Track of Your Money / 3 / 


Encouraging customers to make online purchases 

Q: Could you tell me the best way to instill con- 
fidence in the purchaser's mind in order to make 
a sale online? I run a small business, and I don't 
accept creditcards.Whatwould make the cus- 
tomer comfortable in sending their money to an 
online business that they don't know? 

A: The key issue, of course, is the credibility of 
your product and you as a provider. So anything 
you can provide to convey the integrity of your 
company and your product is important. 
Prominently displaying your company name, 
street address, e-mail address, and phone 
number reassures visitors that you're an acces- 
sible business and aren't trying to hide who or 
where you are. Testimonial letters or quotes 
signed by real people that include their names, 
locations and businesses are also helpful. A 
satisfaction or money-back guarantee is most 
reassuring, as is anything that you can add to 

your site to convey your positive reputation, 
experience, expertise, and track record. 
Positive, personal, and forthright communica- 
tion without a lot of hype is important, too. 

Considerthese other ways beside credit cards: 

*<" Checks online (called e-checks)through ser- 
vices like XpressChexOnline (www.xpress 

*<" Debit cards, which you arrange with your 
merchant account provider 

*<" Digital wallets or e-wallets, such as 
Microsoft's Passport 

*<" Person-to-person e-mail payments (P2P) that 
the customer arranges through his or her 
bank or through services offered by Yahoo!, 
the U.S. Postal Service, and Citibank 

Open Accounts 

If a customer asks you to give it a line of credit, it's always wise to check out 
the customer's creditworthiness. You can get credit reports on businesses 
from firms like Dun & Bradstreet Business (www. dnbcredi t report .com) and 
Credit. Net (www . credi t . net). For credit checks on consumers, the major 
credit reporting agencies — Equifax, Experian, and TransUnion — provide 
this service to businesses. Visit their Web sites or give them a call for more 

Using the PayPal option 

As a direct result of the explosion of the eBay online auction service, PayPal 
(www . paypa 1 . com) and a number of similar financial services companies 
have sprung up to facilitate the resultant transactions. In addition to offering 
the ability to accept cash transfers from customers with their own PayPal 
accounts, PayPal allows your customers to pay you by using their credit 
cards. You can then either keep the funds in your PayPal account or electron- 
ically transfer it to your business's bank account. 

I jO Part II: Managing Your Money 

Using PayPal to accept your customers' credit cards can result in some com- 
pelling advantages over the more traditional process of qualifying for and 
establishing a merchant account, including the following: 

f" You do not have to fill out a lengthy application or jump a bunch of hur- 
dles to be able to accept credit cards for your business. Simply establish 
a PayPal account (which takes at most a few minutes), and you're ready 
to go. 

«-<* Although not free, the fees that you'll pay to accept credit cards may be 
significantly less than what you would pay a bank for running charges 
through a merchant account (currently 2.2-2.9 percent, depending on 
average number of transactions each month, plus $0.30). If you're pro- 
cessing a lot of credit card payments, these savings can really add up. 

*<* Unlike merchant accounts, there are no monthly fees for leasing credit 
card software or generating transaction records. 

Our advice? Give the PayPal option serious consideration when you're start- 
ing out. It's far easier than establishing a merchant account, and the cash is 
just as green when it hits your bank account. 

Choosing the Best Bookkeeping 
System (or \lour Business 

Keeping track of your business's financial transactions is a must — there 
are simply too many good reasons for doing so to ignore it. Your business's 
finances aren't going to get less complicated as your business grows; in fact, 
the opposite is likely to be true. Start your business off on the right foot, and 
make accounting for your financial transactions a regular part of doing 

Although you may enjoy playing with Microsoft Excel, instead of creating 
your own spreadsheets from scratch, our advice is to pick up one of the 
many excellent accounting software programs available on the market today. 
Programs such as Quicken, QuickBooks, Microsoft Money, and Peachtree 
Accounting can take care of your business's every financial need — now and 
into the future. 

Here is a listing of some of the many features in QuickBooks: Basic — a capa- 
ble and easy-to-use software program for most home-based businesses. 

IV Print checks, pay bills, and track expenses 
v Invoice customers, and track payments and sales taxes 

Chapter 7: Keeping Track of Your Money / jy 

is* Generate reports, including profit and loss, statement of cash flows, bal- 
ance sheet, sales reports, and more 

v* Manage payroll and payroll taxes 

i^ Track information for taxes and share information with an accountant 

*«* Extensive tutorials and help functions 

The accounting method you decide to use ultimately depends on the nature 
of your business and on the amount and complexity of the financial transac- 
tions that you incur. If you're at all in doubt as to how to proceed with your 
bookkeeping or accounting system, talk to an accountant for help in getting 
set up the right way. 

You'll have a great feeling when you get your business off the ground and 
receive your first payments for your products or services. After all your hard 
work and planning, this is what you've been waiting for. Chances are you'll be 
busier than you ever imagined and may easily get so caught up in taking care 
of customers that you forget to take care of your business. 

However, successful businesses don't just happen — they require constant 
attention. Like a wonderfully productive vegetable garden, businesses need 
to be carefully tended and watched for signs of trouble. In business, one of 
the best ways to keep your eye on the health of your business is to review 
the wide variety of financial reports available to you. Make a regular habit of 
generating the reports you need and reviewing them. Don't just assume that 
everything is fine — prove it to yourself regularly. 

Check registers and bank statements 

The most basic form of financial analysis is done once a month, when you 
balance your check registers against your bank statements. Most bank state- 
ments summarize the total dollar amount of the deposits you made during 
the month, as well as the total dollar amount of the money you disbursed 
from your account. After you have double-checked to make sure that the 
bank statements are in agreement with your check register, subtract the 
amount of your checks from your deposits to give yourself a quick-and-dirty 
idea of what direction your business is heading financially — north or south. 

Spending far more than you're taking in? Then you know that you have to find 
ways to bring in more money while controlling expenses. Bringing in far more 
money than you're spending? Terrific! Figure out how to do more of what 
you're doing. 

I IXU Part II: Managing Your Money 

Financial statements 

Financial statements take the data you've entered into your accounting 
system and organize it in a way that can allow you to quickly gauge the finan- 
cial health of your company. While financial statements may seem a bit intim- 
idating to many — especially for new home-based businesspeople — 
accounting and bookkeeping software make the process easier than ever 
before. It's really as simple as one or two clicks of your computer's mouse. 

Two of the most popular and useful financial statements are the income state- 
ment and the balance sheet. Each has its own unique role to play in your 
financial analysis and, ultimately, in the way you run your business. 

The income statement 

The income statement (also known as a profit-and-loss statement, or P&L) mea- 
sures the profitability of your business: how much money is left over after you 
add up all your business revenues and subtract all your business expenses. 

Income statements reveal three key pieces of information: 

v* A business's sales volume during a specified period 

v* The business's expenses during a specified period 

v The difference between the business's sales and its expenses — its profit 
(or loss) — during a specified period 

Table 7-1 shows what a typical income statement looks like. 

Table 7-1 

Susan's Antiques 

Income Statement — 

- Twelve Months Ended December 31, 20XX 


Gross sales 


Less: Returns 


Net sales 


Cost of Goods Sold 

Beginning inventory 




Less: Purchase discounts 


Chapter 7: Keeping Track of Your Money 1 11 I 

Income Statement — Twelve Months Ended December 31, 20XX 

Net purchases 


Cost of goods available for sale 


Less: Ending inventory 


Cost of goods sold 


Gross profit 


Operating Expenses 

Total selling expenses 


Total general expenses 


Total operating expenses 


Operating income 


Other income and expenses 


Total other income and expenses 


Income before taxes 


Less: income taxes 


Net income 


In the example in Table 7-1, Susan's Antiques had $49,000 of net sales revenue 
and a cost of goods sold of $10,000, leaving the company with a gross profit 
of $39,000. However, this gross profit was further reduced by the expenses 
of selling products and running the company (advertising, printing, rent, 
salaries, bonuses, and so forth) and by income taxes. The result is net 
income of $9,000. 

The balance sheet 

The entire world of accounting hinges on a simple mathematical truth, the 
accounting equation: 

Assets = liabilities + owners' equity 

Assets include cash and things that can be converted to cash. Liabilities are 
obligations — debt, loans, mortgages, and the like — owed to other organiza- 
tions or people. Owners' equity is the net worth of the company after all liabil- 
ities have been subtracted from the organization's assets. 

f u2 Part II: Managing Your Money 

Table 7-2 shows a sample of a typical balance sheet. 

Table 7-2 



Consolidated Balance Sheet — as of December 31, 20XX 


Current Assets 

Cash and cash equivalents (checks, money orders) 12,000 

Accounts receivable 




Total current assets 


Fixed Assets 



Furniture, fixtures, and improvements 


Allowance for depreciation and amortization 


Total fixed assets 


Total assets 


Liabilities and Owners' Equity 


Current Liabilities 

Notes payable to bank 


Accounts payable 


Accrued compensation and benefits 


Income taxes payable 


Deferred income taxes 


Current portion of long-term debt 


Total current liabilities 


Long-term debt 


Deferred income taxes 


Total liabilities 


Chapter 7: Keeping Track of Your Money / uj 

Consolidated Balance Sheet 

' — as 

of December 31, 20XX 

Owners' Equity 

Common stock 


Additional paid-in capital 


Retained earnings 


Total owners' equity 


Total liabilities and owners' 



The value of the assets of Susan's Antiques is exactly balanced by its liabili- 
ties and owners' equity. Because of the accounting equation, there is no other 
option. The balance sheet demonstrates the fact that assets are paid for by a 
company's liabilities and owners' equity. Conversely, the assets are used to 
generate cash to pay off the company's liabilities. Any excess cash after liabil- 
ities are paid off is added to owners' equity as profit. 

Key financial ratios 

Want to quickly assess the financial health of your organization? Financial 
ratios provide the tools you need to do the job quickly and accurately. Most 
of the numbers are readily available from your accounting reports, including 
the income statement and balance sheet. The following sections discuss the 
most commonly used financial ratios. 

Current ratio 

The current ratio gives you an indication of your ability to pay your com- 
pany's current liabilities out of your current assets. Generally, a ratio of 2 or 
more is considered favorable. 

Current ratio = Current assets * Current liabilities 

= $67,000 * $34,000 

= 1.97 

Quick ratio 

The quick ratio (also known as the acid-test ratio) is used to measure your abil- 
ity to pay your current liabilities out of your current assets. It is the same as 
the current ratio, except for one thing: Inventory is subtracted from current 
assets before the ratio is computed. A ratio of 1 or more is generally consid- 
ered good. 

[till Part II: Managing Your Money 

Quick ratio = (Current assets - Inventory) 4- Current liabilities 
= (67,000 - 48,000) * 34,000 
= 0.558 

Debt-to-equity ratio 

The debt-to-equity ratio reflects the amount of debt an organization has accu- 
mulated to outside creditors versus the amount of money invested by owners 
or shareholders. Banks are particularly interested in assessing your debt-to- 
equity ratio as part of the loan decision process. In general, debt-to-equity 
ratios in excess of 1 are considered too high and indicative of too much debt. 

Debt-to-equity ratio = Total liabilities * Owners' equity 

= $54,000 * $46,000 

= 1.17 

Return on investment 

Return on investment (ROI) tells you how effective you are at earning a profit 
from the money that its owners invest in the company. The higher the ROI, 
the better. 

Return on investment = Net income + Owners' equity 

= $9,000 * $46,000 

= 0.195 or 20 percent 

Finding Happiness in Positive Cash Ftau/ 

For a new business — especially a new, home-based business that you 
depend on to generate income in both your work and your personal lives — 
generating a positive cash flow as quickly as possible after startup of the 
business is absolutely critical. Every new business goes through an initial 
period during which expenses exceed revenues (thus generating a negative 
cash flow), but the sooner this can be reversed, the better for the short- and 
the long-term financial health of the business (and the easier you'll sleep at 

Happiness in business truly is a positive cash flow. The following sections 
help you put your company into the black and out of the red. 

Chapter 7: Keeping Track of Your Money / [1J 

Treating cash as kinql 


For most home-based businesspeople who have chosen the sole- 
proprietorship form of business (see Chapter 1 1 for more on the most common 
forms of business), money is used to pay not only business expenses, but also 
personal expenses if you're the primary wage earner. The money from your 
business enables you to fulfill your obligations, such as rent and car payments. 

Should you lease or buy? 

Q: I'm thinking about acquiring a new van for my 
business and upgrading my computer system. 
Should I lease or buy? 

A: The choice to rent, lease, or buy has many 
important business considerations. For exam- 
ple, leasing may enable you to get a better van 
or computer than you could otherwise afford. 
Because leasing is normally equivalent to 100 
percent financing, it may allow you to keep 
more working capital on hand. Leasing may 
allow you to pay for the items out of your earn- 
ings instead of having to use your savings or get 
a home-equity loan. 

But of course, you need to qualify for a lease, 
which means you must have good credit, 
although probably not as flawless for leasing 
office equipment and furniture as for leasing a 
van. As a general rule, if you're leasing under 
your business name, you can expect to be 
required to have been in business for at least a 
year. But computer companies like Dell and 
Gateway all have consumer leasing programs 
based on credit history. 

Leasing has a cash advantage over a purchase 
on credit because a lease usually requires little 
or no down payment, whereas a credit purchase 
may require 20 to 30 percent down. However, a 
disadvantage of leasing is that it's more expen- 
sive than buying because it includes charges to 
cover overhead and profit. If dealers are offering 

zero-interest financing, leasing is decidedly more 
expensive. Technological obsolescence is 
another reason often cited for leasing, though 
some leases include annual automatic upgrades. 
At the end of a lease period, you can give back 
what may be obsolete equipment that may have 
little market value. You may also get additional 
tax benefits from leasing, but because tax laws 
are continually changing and have many excep- 
tions to exceptions, consult with your tax spe- 
cialist before deciding about leasing. 

Taking all this into account, you can see there is 
no stock answer as to whether renting, leasing, or 
buying is best. If you do decide to lease, consider 

*<" The exact nature of the financing agree- 
ment: Does it have liens or restrictions? 

*<" The amount of each payment: Lookforadd- 
on and document-processing fees or termi- 
nation penalties. 

*<" The person responsible for insurance, main- 
tenance, and taxes (usually, the lessee). 

*<" What happens to the leased item atthe end 
of the lease. 

*<" Renewal options. 

*<" Cancellation penalties, if any. 

C" Disadvantageous terms and conditions. 

«-" Length of the lease period. 


111%} Part II: Managing Your Money 


Generally, it's cheaper if you arrange your own 
vehicle financing instead of going through a 
dealer, which marks up the loan rate. You can 
determine the cost of a loan in advance by using 
sites like (www. bankrate . 
com), E-Loan (www . el oan .com), CapitolOne 
Auto Finance (, or (www . 1 owermybi lis. com). 
For information and to calculate leasing costs, 
you can get a lease quote at www. lease 
source .com , as well as purchase their pric- 
ing services. 

Whether you buy or lease, but particularly if you 
lease, consider getting gap insurance included 

in your lease. This protects you if you find your- 
self in a situation where a week or two after 
you've gotten your vehicle, it's stolen ortotaled, 
and the insurance company will pay you only 
$18,000 on a $26,000 vehicle. Gap insurance will 
cover the difference. 

Something to consider about leasing computers 
is that you may be restrained to add memory or 
make other changes, because you will have to 
restore each computer to its original condition 
at the end of the lease period. 

There are, however, many different forms of money available to you, includ- 
ing cash, checks, money orders, and credit cards — and some are better than 
others. For most businesses, being paid in cash — either before delivering a 
product or service, or at latest upon delivery — is by far the top preference, 
followed by checks. Here are the different ways you can be paid, in order 
from the most to the least preferred: 

W Cash: Assuming it's not counterfeit, being paid in cash is ideal. It's 100 
percent liquid, you can spend it immediately if you like, and you can be 
sure it's not going to bounce or have a one-week hold placed on it when 
you deposit it to your business bank account. 

*<* Checks: In many cases — particularly for large payments of many thou- 
sands of dollars — being paid in cash is just not practical, so using 
checks makes the most sense. However, checks aren't as liquid as cash; 
you have to take them to the originating bank or deposit them in your 
bank account (where they may be held until they clear) to be able to 
obtain cash. This takes time. Not only that, but checks also introduce 
the possibility that the customer's account may not have sufficient 
funds available to pay the obligation or that the checks are bogus. 

v* Credit cards: Credit cards are another step down the ladder of prefer- 
ence for receiving money. Credit card companies take a piece of every 
transaction that you give to them to process. But if a card turns out to 
be stolen or bogus, or if your customer decides to dispute the charge 
because she is unhappy with the product or service you delivered, you 
may be out the amount of the entire transaction. 

Chapter 7: Keeping Track of Your Money / £i / 

v* Online payment: This includes services such as PayPal, Western 
Union's MoneyZap, and for customers who don't have 
credit cards or who may be credit-adverse (who account for about 10 
percent of online sales). 

*<* Credit: When you sell someone a product or service and let him pay 
for it later, you're extending credit to your customer. Although this prac- 
tice is quite common in business, it is by far the least preferred way 
to be paid. It may be weeks or even months before you finally get your 
money — perhaps well after you have sold and delivered your products 
or services — and you run the risk of never being paid at all. If you do 
decide to bill your clients for your products and services, be sure to first 
check out their credit history. If in doubt, require your clients to pay you 
in cash, by check, or with a credit card. 

Creating a positive cash flow starts with bringing cash into your business. 
The longer you take to convert whatever form of payment you decide to 
accept into cash, the more time goes by before your cash flow is positive. 
And don't forget: Happiness is a positive cash flow. 

Finding scVen Ways to kick-start 
your cash (tout 

Do you always seems to be a day late and a dollar short? Although you're 
bringing in good money, it's already spent as soon as it arrives? These are 
all warning signs that you have a problem with cash flow. Assuming you're 
charging enough for your products and services, either you're not collecting 
your money quickly enough or you're spending too much money too quickly. 

Here are some ways to put your cash flow on the right track: 

V Get your money up front. If at all possible, ask for payment before you 
deliver your products or services. Have you noticed how most businesses 
that sell their products on the Internet require that payment be made by 
credit card when an order is placed? Or how fast-food restaurants want 
you to pay your money before they hand you a bag of fries or a soda? 
There's a reason for this: cash flow. And there's no better way to get your 
cash flowing in the right direction than being paid sooner rather than 

*<* Don't pay your bills any sooner than you have to. Many people feel 
that they should pay their bills as soon as they receive them. This is a 
mistake. Your cash flow will thank you if you wait to pay your bills until 
you're required to do so. If, for example, your utility bill requires pay- 
ment 30 days after you receive it, wait until day 25 before you write out 

/ [lQ Part II: Managing Your Money 

your check and drop it into the mail. This doesn't mean that you should 
hold your payments longer than the date that payment is required to be 
made. Late payments may, at best, create ill will between you and your 
vendor or supplier and, at worst, damage your credit. 

*<* Make sure your invoices are timely — and accurate! Send out invoices 
as soon as you deliver a product or service — preferably with the deliv- 
ery itself. And make sure they are accurate. Many payments are delayed 
or rejected because of honest but preventable mistakes in invoicing. 

i^ Bill more often. The more often you bill your clients or customers, the 
more often you'll be paid. And the more often you're paid, the better 
for your cash flow. Instead of billing your clients quarterly, why not bill 
them monthly? If you're supplying products, try breaking your deliveries 
into smaller chunks that you can bill sooner and more often. 

V Give prompt payment discounts. Everyone loves price discounts, and if 
you offer discounts to clients who pay their bills quickly, you're sure to 
have many takers. You may get a little less money as a result, but this is 
offset by the fact that you get your money sooner rather than later. 

i* Manage your expenses. The flip side of bringing cash into your com- 
pany is sending it out. The less cash you spend, the better your cash 
flow will be. Spend money on your company only when necessary. 
Instead of buying the latest and greatest computer every year, for exam- 
ple, try to make the one you have last as long as you can — replacing it 
only when necessary. 

U* Manage your accounts receivable. This means nothing more than being 
sure to keep track of what's owed you and taking action to collect late 
payments. There are plenty of reasons why you haven't been paid the 
money that is due you, however, and you'll never find out why if you 
aren't keeping track of your clients' payments. Accounting software pro- 
grams such as QuickBooks can easily generate a receivables aging report, 
which tells you the status on all of your payments. If payments are even 
a day late, take immediate action to get paid. 

Understanding collections 

There comes a time in the life of every home-based business owner when a 
client either forgets to pay you for the products or services that you sell her 
or outright refuses to do so. It's one thing if the products and services that 
you sold your client were never delivered, were supplied late, or were poor 
in quality. Most customers are going to have a problem paying you in those 
kinds of situations, and they may express their displeasure by holding on to 
the cash that they owe you. It's another thing altogether, however, if you did 
what you agreed to do when your client placed his or her order. 

Chapter 7: Keeping Track of Your Money 1 Uy 

But why wouldn't your clients pay you the money they owe you? Or why 
would they drag the process out so long that it becomes almost more trouble 
getting your money than it's worth? There are a number of possibilities, 

**" The check may be in the mail — really. 

*-" Your client may have forgotten to pay you. 

v* A mistake in your invoice may prevent your client from paying you. 

v* Your client may not be satisfied with the product or service that you 

i* Your client may be trying to improve his own cash flow or make a last- 
ditch effort to save his business before declaring bankruptcy or going 
out of business. 


Each of these issues can be addressed, but you have to find out why you 
haven't been paid before you can address them. Collecting money owed you 
isn't the best part of having your own business, but it is necessary. 

Peter sometimes thinks he leads a charmed life. In the 15-plus years that he 
has been writing professionally, on only one or two occasions has he had to 
lean on a client to make payment, and never once has a client not eventually 
made good on his or her obligations. In the handful of situations where pay- 
ment was slow, it didn't take more than a phone call or two to get the client 
to stick a check in the mail. One time, Peter had to write a two-page letter 
explaining his position in detail to get the client to see the error of his ways 
and secure payment. 

Here is a six-step plan that should get even the balkiest client or customer to 
pay up: 

1. Personally call your client. 

Before you do anything else, get on the phone with your client to find 
out what the problem is. If it's minor, you can take care of it right then 
and there, over the phone. In the vast majority of cases, this is all it will 
take to nudge your clients into paying you. By calling first, you extend 
your clients the courtesy of allowing them to rectify any problems them- 
selves or to explain why they have decided to withhold payment (per- 
haps they are unhappy with the products or services they received). If, 
however, calling your client doesn't get payment to you right away, you 
need to take further action. 

2. Send out a past-due notice immediately. 

Don't wait after a payment is due to send out a past-due notice. If pay- 
ment is due 15 days after you invoice, and you don't receive it, send out 

130 Part II: Managing Your Money 

a past-due statement on day 16. If payment is due 30 days after you 
invoice, send out a past-due statement on day 31. This is no time to be 
shy — it's your money, so go after it. In addition to sticking the past-due 
statement in the mail, try faxing and e-mailing copies. You can use soft- 
ware to tickle or remind you when to act on a payment. For example, 
QuickBooks has a reminder feature. 

3. Stop work. 

If your client or customer drags things out longer than is acceptable to 
you, you may have to stop work to get their attention. If you sell prod- 
ucts, this means suspending deliveries of any further orders until your 
client pays his bill. If you deliver services, this means putting any cur- 
rent projects on hold until payment is made. Stopping work shows your 
client or customer that you're serious about getting paid, and it is sure 
to solicit some sort of response. Before you undertake this step, how- 
ever, be sure to give your client fair warning that you plan to take this 
action if you don't receive payment by a particular date. 

4. Enlist the services of a collections agency. 

If you've gone through all of the previous steps and still haven't been paid, 
it's probably time to assign the tardy account to a collections agency. A 
collections agency specializes in motivating customers to pay their finan- 
cial obligations. Subject to federal, state, and local regulation, collections 
agencies use a variety of tactics to get your clients' attention — including 
phone calls, letters, and even lawsuits — and to get them to pay. You pay 
a price for this service, however. Expect to pay anywhere from 10 to 50 
percent of any monies collected by the agency. Although an agency takes 
a healthy cut, the probability of getting some payment will likely increase 
with an agency in your corner. 

5. Mediate. 

Taking a client or customer to court isn't our idea of fun. Before you're 
forced to take that last, most drastic step, you have one more way to get 
out of your impasse: mediation. A mediator is an impartial third party 
whose job it is to help you and your customer work through your prob- 
lems and reach a reasonable solution — one that is a win for both par- 
ties. If your client has simply decided not to pay you, mediation may not 
be fruitful. However, if your client is upset because of some perceived 
shortcoming in your performance, you may have a chance of resolution 
through mediation. You can find mediators in the Yellow Pages, listed 
under Mediation Services. 

6. Take them to court! 

Taking your clients to court is always the last resort. It not only takes up 
a lot of your precious time (and, if you need a lawyer, your money), but 
also, suing a client will surely put the last nail in the coffin that was your 

Chapter 7: Keeping Track of Your Money / J / 

business relationship. If, however, despite all your efforts, you still 
haven't been paid, and you decide that it's in your interest to do every- 
thing in your power to get the money that is owed you, by all means take 
your client to court. In many cases — for relatively small amounts of 
money owed — taking your client to court means going to small-claims 
court, which, by design, offers a simple and inexpensive way for you to 
have your case heard by a judge. The amount of money that qualifies as 
a small-claims action differs from state to state, and from country to 
country. In Alaska and Colorado, for example, a small-claims action can't 
exceed $7,500, whereas $1,500 is the limit in Kentucky and Rhode Island. 
And although you can sue a client for up to $10,000 in small-claims court 
in the Canadian province of Ontario, you'll find a limit of £5,000 in 
England and Wales. 

The extent to which you pursue your money is up to you. In some cases, you 
may decide that it's easier to write off the money (and the business relation- 
ship) than to pursue it to its ultimate conclusion. In other cases, you may 
decide to do whatever is necessary to get paid. 

Getting a Loan 

Studies show that one of the primary reasons so many businesses fail in their 
first year of existence is because they are undercapitalized — in other words, 
they don't have sufficient cash to meet their ongoing obligations over the long 
haul. Depending on what kind of business you have, putting enough money 
aside to allow you to make it through your first year can be a daunting propo- 
sition. But it shouldn't stop you from starting a successful home-based busi- 
ness — because you can always apply for a loan. 

For many home-based businesspeople, the first choice in lenders is a time- 
honored one: F&F (friends and family). If friends and family aren't able to 
meet your business needs, though, you need to look elsewhere for the cash 
you need to sustain your business as you get established and build sales. 

In the following sections, we explain some of the most commonly used 
sources of loans for home-based businesses. 

Discovering different kinds of credit 

Banks, credit unions, savings and loans, and other financial institutions are 
always coming up with new-and-improved loan products. Keep in mind, 

j f}2 Part II: Managing Your Money 

though, that you may have trouble obtaining a loan in the name of your busi- 
ness until it has established a track record of success over some extended 
period of time. 

Here are some of the most common forms of credit for home-based busi- 
nesses, along with their pluses and minuses: 

*<* Credit card: Many a home-based business has been financed with credit 
cards. In fact, a recent survey showed that more than one-third of all 
small business owners use credit cards to at least partly finance their 
business operations. Not only are credit cards incredibly easy for most 
people to get (perhaps too easy; many people receive at least one or two 
credit card offers a month), but they are also convenient and easy to 
manage. All this convenience comes at a price, however. Credit card 
interest rates can be obscenely high — up to 25 percent, in some cases — 
and they are so easy to use that you can quickly find yourself bumping 
up against your credit limit. Although you'll likely be able to write this 
interest expense off when you do your taxes, you can quickly find your- 
self in over your head if you aren't careful. Used judiciously, credit cards 
can be a terrific business tool — and may be all the credit you ever need. 

*<* Personal loan: Personal loans are made to individuals based on their 
own personal income and creditworthiness. Assuming you have suffi- 
cient income and a good credit rating, there's a good chance that you 
qualify for the loan you need. After you have your loan, you're free to 
spend the money as you please, making personal loans quite flexible. If 
you decide to apply for a personal loan, be sure to do so while you're 
working at your regular job — before you leave to start your own busi- 
ness. Your income is likely to be higher, at least initially, improving the 
chances of approval as well as increasing the amount of money your 
bank will be willing to loan to you. 

*«* Business loan: Banks and other financial institutions make business loans 
to finance business startups, cover ongoing operational needs, or finance 
business expansion. New businesses are inherently risky — they often 
have little or no equity (value) built up, usually lack a sufficiently long 
track record of success, and have a statistically high rate of failure within 
the first few years after founding. So business loans can be difficult for 
home-based businesses to obtain. Although rates can be reasonable — 
usually only a few points over the prime rate established by the Federal 
Reserve — the hoops you have to jump through, as well as the ongoing 
reporting and bank reviews, may be enough to send you looking else- 
where for funding. You may even have to pledge your personal assets as 
collateral in the event of a loan default. To get a business loan, at a mini- 
mum you need a business plan, and you need to establish a good working 

Chapter 7: Keeping Track of Your Money / j>3 

relationship with your banker. If you and your business have what it takes, 
business loans can be your best solution. 

t^ Line of credit: A line of credit is a business loan with a unique twist: 
Instead of a lump sum for the full amount of the loan, you're given 
approval to borrow funds up to a certain limit in whatever amounts or 
as often as you like. Costco, the large nationwide warehouse retailer, in 
cooperation with American Express, offers unsecured (no-collateral) 
lines of credit of up to $100,000 to its executive-level members. It 
charges an annual fee of $99, and the current interest rate is prime plus 
percent — a rate that's hard to beat. For information, check out the 
Costco Web site at www. costco .com. 

t^ Home equity loan: A home equity loan is similar to a personal loan, with 
one major difference: You're required to pledge your home or other real 
property as collateral in the event that you default on your loan obliga- 
tions. Because your equity bears the burden of risk — a fact that can 
weigh heavily on your mind if your business gets into financial trouble — 
home-equity loans for substantial amounts of money can be obtained 
relatively easily. Loan terms can run 15 years or more. You likely have a 
choice of a lump sum or setting up a line of credit that you can draw on — 
and pay back — as necessary. 

*-" SBA loan: SBA loans are business loans that are backed by the U.S. Small 
Business Administration. Because the lending bank has less of a risk in 
the event of default, home-based business owners can obtain them more 
easily than a standard business loan. Interested? Talk to your friendly 
local banker or visit the SBA at www. 

So what kind of loan should you get? The answer depends on your particular 
situation, financial goals, how much money you plan to borrow, and your own 
personal credit history. Remember, however, that you should always mini- 
mize how much you borrow and be diligent about paying back your loans as 
soon as you can. 

Getting the ban you Want 

The best way to get the loan you want is to first understand what factors go 
into a decision to extend or deny credit to an applicant. The standard rule 
used by banks, credit unions, savings and loans, and other financial institu- 
tions is called the Five Cs: 

*<* Capacity: Will your business have the financial wherewithal to make 
loan payments — in full and on time — as required by your agreement 
with the bank? Will your cash flow support this additional burden of 
debt on your business? If the answers to these questions are no, you 

15*} Part II: Managing Your Money 

need to figure out how to improve revenues while tightening up on 
expenses. Do this before you apply for your loan, not after. 

*<* Capital: Capital represents the ratio of your company's debt to assets or 
equity. Unfortunately, most business startups — including home-based 
businesses — have a relatively high debt load versus equity or assets. 
This is normal. You can, however, improve your chances of getting the 
loan you want by minimizing the debt you carry and maximizing equity 
and your own investment in the business. 

«-" Character: Are you personally a good credit risk? Do you have a history 
of meeting your own financial obligations, including repaying loans on 
time and avoiding defaults or bankruptcies? If your own credit is shaky, 
this is an indication to a lender that your character is less than sterling. 
If this is the case, be sure to do whatever you can to repair your own 
credit before you apply for a loan. Obtain a credit report from one of the 
major credit reporting agencies — Equifax at (800) 525-6285, Experian at 
(888) 397-3742, or TransUnion at (800) 888-4213 — and take action on 
any problems that may show up. We discuss exactly how to do this in 
more detail in the "Fixing your bad credit history" section that follows. 

v* Collateral: What kind of property can you pledge in case you default? 
Car loans require your car to be pledged as collateral. Home mortgages 
require that your house be pledged as collateral. What are your options? 
In many cases, lenders may require that you pledge your assets or prop- 
erty to secure your loan. Your ability to provide sufficient collateral will 
greatly enhance your chances of getting the loan you seek. 

w* Conditions: Conditions include the health and growth potential of the 
markets within which you operate, the demographics of the typical 
buyers of your products and services, and many other economic factors 
external to your business. Although you can do little to influence or con- 
trol the behavior of your markets or your customers, you can influence 
exactly which markets and customers you plan to target. 

As you prepare to apply for a loan, review each of the Five Cs, and make an 
honest assessment of how you measure up. Are there areas you can improve 
in? Do so — before you apply for your loan. There's no reason why — if you 
do your homework — you can't get the loan you want for your business. 

Fixing qow bad credit history 

It would be terrific if we all had great credit histories, but this isn't always the 
case. Unfortunately, a bad credit history can prevent you from getting the 
loan you want and the money you need. The good news is that bad credit 

Chapter 7: Keeping Track of Your Money / jf} 

histories can be turned into good credit histories. It takes time and patience, 
but the rewards can be well worth the effort. 

In her book Money Troubles: Legal Strategies to Cope with Your Debts, Robin 
Leonard presents an eight-point plan for repairing your credit and improving 
your chances of getting a loan: 

1. Secure a stable source of income. 

2. Create a budget you can and will live within. 

3. Open a passbook savings account (and add money to your account on a 
regular basis). 

4. Apply for a savings passbook loan. 

5. Pay back this loan over a six- to nine-month period. 

6. Obtain a secured credit card. 

7. Use this credit card sparingly (and pay off balances quickly to avoid 
potentially high interest charges). 

8. Apply selectively for other cards (including gasoline companies, depart- 
ment stores, and other nonfinancial institutions). 

If your credit is seriously damaged, and this plan isn't enough to solve the 
problem, consider working with a credit counselor or credit repair agency. 
For more information, contact the National Foundation on Consumer Credit 

at www. nf cc .org. 

130 Part II: Managing Your Money 

Chapter 8 

The Price Is Right: Deciding 
How Much to Charge 

In This Chapter 

Understanding what your prices must cover 

Sizing up your potential customers and how much they will pay 

Researching your competition 

Applying pricing strategies that lead to sales 

Deciding whether to discount 

MyJricmg plays an extremely important role in the ultimate success of your 
V business. Do it right, and your business will flourish; do it wrong, and 
your business will likely die a slow and miserable death. Because your busi- 
ness will live or die as a result of your pricing, this topic deserves your undi- 
vided attention. 

Here's how it works: If you set your prices too high, your clients will seek out 
less expensive sources for the products and services you provide, and you'll 
soon find yourself going out of business from lack of sales. Set them too low, 
however, and although you'll be swamped with customers — everyone loves 
a bargain, after all — your profit margins will be too small to sustain your 
business as it grows. The key is to find a compromise between these two 
extremes that pays you what you're worth while generating sufficient busi- 
ness to keep you working as many hours as you want. 

You can set prices for your products and services in a variety of ways. In many 
cases, though, finding the right price comes down to good old-fashioned trial 
and error: Do some research, check the competition, set a price, and see what 
happens. If sales aren't high enough, you can decide whether to lower your 
prices as an incentive for potential buyers to part with their cash. If sales are 
too high, but the resulting profits too low, you can choose to raise your prices 
to improve your margins (see the section "Changing your prices" near the end 
of this chapter). 

j f}0 Part II: Managing Your Money 

The best pricing strategies are ones that strike a balance of generating the 
sales you need to survive while earning a reasonable profit that will allow 
your business to grow in the future. This chapter helps you understand how 
to develop a pricing strategy that is best for you, your business, and your 
customers and clients. In the sections that follow, we help you sort out the 
costs that you must cover when you set your prices and help you get a feel 
for what your customers will be willing to pay. We give you ideas for how to 
research your competition and review a number of different approaches to 
pricing that will aid your sales efforts. Finally, we consider the reasons why 
you should (or shouldn't) consider discounting your prices. 

Figuring Out What \lour 
Prices Must CoVer 

Whereas the motivation behind your business might be to help others get 
things done or to provide them with the products that they need to run their 
own businesses successfully, you can't have a business — at least for very 
long — if you don't charge your customers some amount of money for your 
trouble. Yet you shouldn't just charge them any old price; your price has to 
be low enough to attract the attention of prospective customers but high 
enough to allow you to generate a profit. 

From time immemorial, the whole idea of pricing products and services has 
been to pay for all expenses in running a business while leaving a reasonable 
profit. Unfortunately, many home-based businesspeople don't fully understand 
the expenses they actually incur in running their businesses. Not only that, but 
they also sometimes forget that their home-based businesses should pay a 
decent salary and generate a reasonable profit — just like non-home-based 

Imagine that the finances of your home-based business are a house. Just like 
any other sturdily built house anywhere in the world, it has a roof, a founda- 
tion, walls, doors, and windows. This house also has a first and second floor. 
Figure 8-1 shows this money house. 

The following lists the major components of this money house and how they 
relate to the finances of your home-based business: 

u* The foundation — your salary: Whenever your company sells a product 
or service, a portion of the cash you take in is set aside to pay you and 
any employees a regular salary. 

Chapter 8: The Price Is Right: Deciding How Much to Charge t Ov 

v* The first floor — your overhead: The cash you take in also pays for your 
overhead, including all the expenses that your business requires to oper- 
ate, whether or not you're selling any products. Insurance, rent, and tele- 
phones are examples of overhead expenses. 

u* The second floor — your direct costs: Direct costs are expenses that 
you incur on behalf of specific projects or products. If you drive to 
another town for a meeting, for example, that's a direct expense. 

*<* The roof — your profit: Profit is what you're in business to try to make; 
it's what's left over when you've brought in all your cash for selling a 
product or service and subtracted out your salary, overhead, and direct 
expenses. Profit is your reward for taking a risk (yes, starting your own 
business does involve taking a risk, even if you've signed up for a "proven" 
system), and it plays an important role in building your business. 


Just like a large business like General Motors, IBM, or Pfizer, your home-based 
business can make a profit or incur a loss. Home-based businesses are real 
businesses, and the profit you make is just as real as it is for any other busi- 
ness. Profit can be viewed as many things. Some people may identify the rev- 
enue beyond what they expect to pay themselves as a higher salary. For 
others, it's having the money to spend on extra things, such as investing in 
one's business without borrowing (usually a better idea than taking out loans 
to grow your business) or taking a long-deserved trip to a ski resort or the 
beach. But for most, it's additional earnings. 

Figure 8-1: 

The money 

The Money House 


The roof: your profit 

The second floor: your 
direct costs 

The first floor: your 

■ The foundation: 
your salary 


Part II: Managing Your Money 

In the following sections, we take a closer look at the kinds of financial ele- 
ments that make up each part of your money house and how they all work 
together to determine the prices you charge for your company's products 
and services. 


When you are set up as a sole proprietorship, it's unlikely that you will pay 
yourself a salary. Why not? Because under a sole proprietorship, the money 
you make in your business is automatically counted as income to you for tax 
purposes. If you've set up your business as a partnership or corporation, 
however, you may find that paying yourself a salary makes a lot of sense. But 
how much should you pay yourself? When deciding how much salary to draw 
from your business, first you have to decide what level of lifestyle you want 
your business to support. There are three major options: 

v* Survival: In this mode, your business is just getting by, and there is little 
or no extra money to set aside to pay yourself. Ideally, you're still work- 
ing your regular job or have a spouse or significant other to help sup- 
port you while you're working to build your sales. 

*«* Comfortable: Comfortable means things are going pretty well — well 
enough to allow you to quit your regular job and work at your home- 
based business on a full-time basis. You can choose to continue with 
the status quo — and be quite comfortable where you are — or work 
to increase your sales and see your business really takes off. 

u* Much better than average: At this salary point, you're making more 

money than most people in your community or even nationwide. Attaining 
this level of income requires a lot of hard work and perhaps no small 
amount of luck. But for many, the rewards are worth the extra effort. 


Overhead consists of all of your home-based business's nondirect costs and 
nonsalary expenses. These are the costs of doing business — the expenses 
that your business incurs even when you aren't creating products or deliver- 
ing services to customers. Here are some examples of common overhead 

v Computer, copier, telephone, fax, and other office equipment 

*<* Office furniture 

i^* Internet and e-mail connection 

Chapter 8: The Price Is Right: Deciding How Much to Charge / %} / 

f" Web-site hosting fees 

v Other marketing costs 

*<* Letterhead and business cards 

t-" Office supplies 

*<* Travel for business operations, marketing, or other nonproject purposes 

*<* Phone line(s) 

V Water, electricity, and other utilities 

V Newspaper, journal, and magazine subscriptions 
*«" Insurance 
t^* Licenses 
*<* Rent or mortgage 
v* Repairs and maintenance 

Because overhead doesn't directly produce revenue (or, ultimately, profit), 
smart business owners work hard to minimize overhead expenses, keeping 
them to the lowest possible level while still providing the highest-quality 
service and products. Before you spend a dime on any overhead item (see 
the preceding list for examples), take a moment to decide whether the 
expense is critical to your business or if you can live without it — at least for 
a while. And don't forget: Your overhead (and direct) expenses are tax 
deductible! Check out Chapter 10 for more details. 

Direct costs 

Direct costs are the expenses that you incur as you create products or 
deliver services; if you aren't making products or delivering services, you 
have no direct costs. Generally, the more direct costs, the merrier, because 
they directly become part of the products and services that you deliver to 
your clients, increasing the overall amount of money that you bring into your 
business (and ideally increasing your clients' satisfaction at the same time). 
Here are some examples of direct costs: 

V Materials and supplies consumed in the manufacturing process 

u* Travel at your client's request 

v* Time spent in client meetings 

«-" Postage and phone calls for specific projects 


Part II: Managing Your Money 

It-" Fees to consultants contracted to assist on specific projects 
t-" Equipment dedicated to producing a specific product or delivering a 
service to a particular client 

If you aren't creating products or working on client projects, you don't incur 
direct costs. (But you do still have to pay for your overhead — whether or 
not you're producing and selling your products and services.) 



While profit might seem like a mysterious concept if you're new to owning 
your own business, it really boils down to a fairly simple idea: 

The difference between a company's revenues and its costs. 

When you take all the cash that your company brings in from selling prod- 
ucts and services, along with income from other sources such as interest- 
bearing bank accounts and investments, and then subtract your salary, 
overhead, and direct costs, you're left with the company's profit. If the profit 
is negative (because your costs exceed your revenues), this is called a loss. 

Starting a training business 

Q: I've been teaching various aspects of com- 
puter applications for several years. I've devel- 
oped one-day seminars on topics like the Internet 
that I give at local colleges. The classes are pop- 
ular — they close out immediately. Many of my 
students follow me to different colleges to take all 
of the different seminars I give. They also bring 
their friends. In other words, the seminars are 
well received and popular. I was wondering if I 
could give these seminars at business confer- 
ences. I also do in-house corporate training, and 
I'm hoping that I will make contacts for future 
contracts for training. Generally, I get paid $200 
for the day. Would I get paid more to do a busi- 
ness seminar? Howwould I go aboutgetting such 

A: Yes, you can speak at business conferences 
and do in-house training. I understand, how- 
ever, that one of the major seminar producers in 
the United States is now paying only $200 a day, 
and this involves lots of travel. But the confer- 
ence and corporate pay rates are typically 
better. To make a go of it, you need to develop 
marketing materials (a video and a media kit) 
and individually solicit meeting planners. You 
will be able to fortify this with great testimoni- 
als, perhaps on tape. The book Speak and Grow 
Rich, by Dottie and Lilly Walters, may help. 


Chapter 8: The Price Is Right: Deciding How Much to Charge / (}j 

Although we suspect you might already know this, remember this about prof- 
its and losses: Profits are good; losses are bad. 

Profit is the roof on the money house that we built earlier in this chapter, and 
it's the motivation that drives many businesses to ever-greater heights. In the 
case of a home-based business, profit is the reward to the owner who risks 
his or her capital in the marketplace. If allowed to accumulate within the 
business, it becomes the equity — the money put aside in savings — that 
gives the company real value. 

Sizing Up \lour Potential Customers 
and What They Witt Pay 

Pricing your products and services is more than simply sticking a price tag 
on them — pricing is an integral part of the overall strategy for your home- 
based business. In fact, it may well be one of the most important components 
(one reason we devote an entire chapter to the topic). Not only is pricing 
important because it determines to some extent exactly how much cash your 
business brings in, but it is also important from a marketing perspective and 
from the perspective of the overall health of your business. 

Set your prices too high, for example, and your sales will be few and far 
between. The result? Little or no cash into the business, and an overall finan- 
cial loss for the business as you continue to expend money that isn't being 
offset by income. Not only that, but you'll also spend an awful lot of time 
twiddling your thumbs as you wait for your phone to ring. Set your prices 
too low, on the other hand, and you're setting yourself up for a going-out-of- 
business scenario as you expend far too much time and money for too little 
return on your investment. 


Before you launch headlong into your new home-based business, you should 
take a close look at your prospective customers — who they are and how 
much they're willing to pay. What if your targeted customers don't seem will- 
ing to pay the price that you need to turn a reasonable profit? Then you've 
got little choice but to rethink your entire business strategy, either by creat- 
ing more value for your clients-to-be to justify a higher price or by moving to 
an entirely different product or service that you can sell at the right price. 

Take a moment or two to picture the kind of person who would buy your 
products or services. As you imagine your typical client or customer, ask 
yourself the following questions: 

*«" What is your product or service worth to your prospective customers 
and clients? Will your customers and clients see what you're selling as 
high value, low value, or something in between? Have you targeted the 

[\)[l Part II: Managing Your Money 


right market for your products and services? If not, what is the right 
market? Are you providing the right products and services to your target 
market? If not, what are the right products and services? 

**" What price are your prospective customers and clients willing to pay? 

Is the price low, high, or somewhere in between? 

*<* Are you charging enough for your products and services to establish 
and grow a healthy business? Will the price your customers and clients 
are willing to pay allow you to cover your business expenses — includ- 
ing the value of your time — while leaving some money left over as 
profit? Will these prices enable you to grow your business, or will they 
cause your business to shrink? 

is* Do you have the right mix of price versus hours worked? Are your 
prices set high enough to make a reasonable return on your investment 
of time and money, or are they so low that you have to work around the 
clock to make enough money just to keep your business afloat? 

Pricing can play an important role in your business's success or its failure 
and deserves your focus and attention — both in initially setting prices for 
your products and services and then in monitoring them over time to ensure 
that they are creating the return you desire. Find the right pricing, and you 
ease the way to increased sales at a high return — something that every 
home-based business owner is happy to have. 

Researching \lour Competition 

As you've noticed, we've been making a big deal about of pricing in this chap- 
ter. It really is important. But if you're new to your home-based business and 
have little or no previous experience selling the products and services you 
now offer, what is the best way to decide what prices to charge? 

By far the quickest and easiest way to determine whether your prices make 
sense is to research your competition and see what they are charging. Once 
you understand what other businesses like yours are charging, you'll have a 
much better idea of the prices that you should charge. Want to attract more 
business than the competition? Then just charge a little less than they do. 
Want to position your company as a premium brand? Then charge a little 
more than the competition. 

Here's some good news: The Internet has made researching your competition 
much easier than it has ever been. Researching competition used to mean 
spending a lot of time leafing through the Yellow Pages and making phone 
calls. No more. Today, with a few clicks of your mouse, you can find all kinds 
of free information about the companies you compete against — information 
that you can use to structure your own competitive strategies and tactics. 

Chapter 8: The Price Is Right: Deciding How Much to Charge / %}j 


The best business media 

Q: Before I start work each morning, I like to read 
the newspaper over breakfast. I find this routine 
both relaxing and motivating, as I am able to scan 
the articles for ideas, leads, general inspiration, 
or information. Unfortunately, I only have time to 
read one paper before work beckons. Which do 
you think offers more relevant information for a 
home-based business owner: a local newspaper 
or a national newspaper such as USA Today ax 
The Wall Street Journal? 

A: The answer depends on the nature of your 
business and your clientele. If your customers 
are businesses, your best bet is The Wall Street 
Journal. This is the newspaper that even 
owners of small businesses most often read. 
However, if your business serves only local cus- 
tomers, your local newspaper is, in almost all 
cases, your best bet. Another alternative, if you 
live in a city large enough to have one, is a local 
business journal that blends both local and 
business news. If your business addresses a 
broad consumermarketonthe Internet, through 
mail order or through wholesalers, a national 
paper like The New York Times or USA Today 
may better help you keep your finger on the 
pulse of popular consumer issues and tastes. 

After making your choice of the one paper to 
read every morning, use the following time- 
saving techniques: 

u* Read industry-specific newspapers online. 

Most newspapers provide a significant por- 
tion of their content online. You can periodi- 
cally peruse relevant topics in newspapers 
that you don't subscribe to. This is also a 
great way to keep up with the newspaper in 
an industry-specific town. If you're in the 
computer industry, for example, you could 
peruse the San Jose Mercury Times site 
periodically (www. s If you 
deal with government, you can pop over to In the enter- 
tainment business, try www. 1 atimes .com. 
Such Web visits can be a great way to take 
a work break! 

is Create your own custom newspaper using 
a site 

v* Subscribe to a weekly business news 
magazine, such as Business Week, instead 
of reading a daily paper. 

Here are some places to start your online search for information: 

w Hoover's Online: www. hoovers . com 

«-" CanadaOne Directory: www. 

w Big Book: www. bi gbook. com 

v Google: www. googl e .com 

t-" Public Register's Annual Report Service: www . p ra rs . com 

v U.S. Chamber of Commerce: www. 

v Business Wire: www. businesswi re. com 


Part II: Managing Your Money 

Fuld & Company is an international leader in obtaining competitive intelli- 
gence on businesses for a variety of clients. The company has developed the 
13 Internet Intelligence Index, available for free on its Web site at www .fuld. 
com. The Internet Intelligence Index contains links to more than 600 
competitive-intelligence Internet Web sites, covering an incredibly wide vari- 
ety of information. 

Pricing Strategies That betii/er Sates 

In an ideal world, the prices you apply to your products and services should 
enhance — not hinder — your ability to sell them. Pricing is a fine art (some 
would say a mystical art), and much of the way that your clients-to-be react 
to them is determined by the psychology of marketing and how you present 
your products and your prices. 

If, for example, your products and services are desirable and in short supply, 
people are willing to pay far more for them than if they are undesirable and 
available in overwhelming amounts. This is the basic law of supply and 
demand that many of us learned about in school. Think for a moment what 
happens when a few toys end up on the top of every child's list of wants 
during the holiday season. As a surge of parents hits the stores, the toys 
inevitably become hard to find, and people are willing to pay top dollar to get 
them — often, whatever it takes to ensure the happiness of their children. 
And for the toys that don't make the top of the list? They are plentiful and 
often on sale. 

What does this mean for you? It means determining the best price points for 
your products and services. In the following sections, we explore different 
ways to develop pricing strategies that ease the way to sales. 

Creating Value for your clients 

Above all, your clients and customers want to feel that they are getting the 
best value for their money. This is true whether the prices you charge are 
high or low. By increasing the perceived value of your products and services, 
for example (value is a subjective judgment, after all), you can increase the 
prices you charge for them and increase your profit at the same time! 

Here are some of the best ways to create and increase the perceived value of 
your organization's products and services: 

v* Go above and beyond: Exceeding your customers' routine expectations 
dramatically increases the perceived value that you deliver to them. 
Think for a moment about how you feel when someone goes out of his 
way to give you the best possible service. Wouldn't you be willing to pay 

Chapter 8: The Price Is Right: Deciding How Much to Charge 10/ 


a little more to get more of that particular kind of service in the future? 
The better work you do, the higher your perceived value and the higher 
the prices you can charge. 

is* Be different: Many markets are crowded with competitors, each offering 
products and services that seem to differ little from the competition. 
If you can differentiate yourself from the rest of the pack — whether 
through novel packaging, a unique sales approach, or by the product or 
service itself — you increase your value to your clients and customers. 

is* Focus on customer service: The bad news is that every industry has 
more than its share of businesses that don't provide good customer 
service. The good news is that this shortfall is a terrific opportunity to 
provide the service that is lacking. Take advantage of it, and you greatly 
enhance the perceived value of your organization's products and serv- 
ices. Believe us — most people vastly prefer buying their products and 
services from companies that provide good service than from ones that 

v* Add value: If you and a competitor offer the same item for the same 
price, why would a customer decide to buy exclusively from you? 
Because you add value to the transaction. Perhaps you provide better 
after-sales support, or maybe you're willing to take returned items for 30 
days after an item is sold rather than the 10 days that your competitor 
allows. By adding value to the items you sell — value as perceived in the 
eyes of the buyer — you create value for your clients (and they will 
value you for it). 

t^ Build long-term relationships: All business is about relationships, and 
your customers and clients value the long-term relationships that they 
develop with you and other trusted vendors. You become more than a 
place to buy something — you become a trusted friend and adviser, 
someone to turn to when your customer has questions or needs help. 
Help a few times, and you'll have a customer for life! 

Always keep your customers' perceived value of your products and services 
in mind when you develop and set your prices. Adding value in your cus- 
tomers' eyes gives you much greater flexibility in the prices you ultimately 

Setting qow prices: five approaches 

Pricing is integral to the marketing process, and it can have a dramatic 
impact on whether potential customers choose to buy from you or from 
someone else. The right price can generate more sales, as we have seen, 
while the wrong price can send potential customers and clients looking else- 
where for companies to fulfill their needs. 


Part II: Managing Your Money 

Online auctions set the price for Sandy's finds 

Auctions have long been a popular way for 
savvy buyers to purchase unique and valuable 
(okay, sometimes not-so-valuable) items. Until 
recently, however, auctions were generally the 
purview of a small subset of the general popu- 
lation. With the advent of online bidding atWeb 
sites, such as eBay (www . ebay .com), anyone 
can participate in auctions 24 hours a day, 
seven days a week, in the comfort of their own 
homes. On eBay alone, more than 3 million 
unique items are for sale at anytime. For home- 
based business owner Sandy Kleppinger of 
Leesburg, Virginia, this new way of doing busi- 
ness has been a godsend. 

Sandy's business — Sandy's Finds — brings in 
well over $100,000 a year. Not bad for a woman 
who, just over a year ago, was home-schooling 
her 12-year-old son and trying to figure out how 
she could make a little extra money working 
part time. Now Sandy works 12-hour days, 6 
days a week, fulfilling more than 75 software 
orders a day. And because Sandy sells all of 
her products through online auctions, Sandy 
doesn't setthe price of her products — her cus- 
tomers do. 

Sandy had no startup capital, no investors, no 
business experience — not even a Web site, let 
alone an e-commerce site. What she did have 
was a fast computer (which she purchased for 
$1,100), an Internet connection, and an irre- 
pressible drive to succeed. She started her 
business with 100 boxes of closed-out software 

that she bought from a remainder bin at a local 
CompUSA store — for only 94 cents each. She 
listed the software on eBay and sold every box 
for an average of $10 each — a markup of more 
than 1,000 percent! When a software whole- 
saler then offered her $6,000 worth of software, 
she jumped — and she hasn't looked back. 

Although Sandy doesn't control the price of the 
products she sells online, she does control the 
products she offers, and she has come to real- 
ize that she'd rather sell one piece of software 
for $35 than ten pieces of software for $3.50 
each. Although the margin (the difference 
between what she pays for the item and what 
she sells it for) may be the same, selling ten 
pieces requires ten times the administrative 
work — pulling and packaging the software, 
generating mailing labels, updating her data- 
base, applying postage, and taking everything 
to the post office. So Sandy has pushed her 
auctions upscale, selling better-quality pack- 
ages at higher prices. An example: She recently 
purchased a quantity of Broderbund 3-D Home 
Design Suite — complete with Wal-Mart price 
tags of $79.99 — from a software wholesalerfor 
only $8.50 each. She promptly turned around 
and auctioned them off on eBay for about $35 

(Source: Margaret Webb Pressler, "Micro-busi- 
nesses Bloom on eBay," Washington Post, 
August 29, 1999) 

The following are five of the most common approaches that home-based 
businesses use to set their prices. As a part of determining your pricing strat- 
egy, carefully consider which approach (or combination of approaches) 
makes the most sense for your business. 

is* Startup pricing: If you're just getting started in your business, offer your 
customers an introductory rate that's set at a point somewhere between 
what other, established businesses charge and the amount you would be 
paid if you were doing the work on salary for an employer. Just don't 

Chapter 8: The Price Is Right: Deciding How Much to Charge I Oy 


forget to increase your pricing to bring it in line with the rest of the 
market after you get past the startup phase of the business and estab- 
lish a track record. And to avoid unpleasant surprises, don't forget to let 
your early customers know that prices will rise in the future. Otherwise, 
they may not be very happy when your prices go up. 

W The going rate: In some businesses, there may be a going rate that most 
every company charges for particular products or services. For example, 
the typical carpet-cleaning business in your community might charge $100 
to clean three rooms and a hallway. You can choose to set your price at 
the going rate and differentiate your business through things other than 
price, such as better customer service or extra service that your competi- 
tion doesn't provide. As some business owners have discovered, finding 
something that differentiates you from the competition can be as simple 
as a flashily painted van that advertises your business everywhere you go 
or an easy-to-remember phone number (for example, 1-800-CARPETS — of 
course, that's already been taken, but use your imagination). 

W Splitting the difference: If you survey your competition, you may find 
that they offer a range of prices for the same products or services: 
some high, some low, and some in between. By splitting the difference 
between the top and the bottom of the range, you can be sure that your 
price is neither too high nor too low. After seeing how your customers 
react, you can make further adjustments later (see the section 
"Changing your prices" that follows). 

u* Bargain basement: If you really want to generate a lot of business 

quickly, you can dramatically undercut your competitors' prices. Before 
you try this approach, understand that some potential clients may be 
wary of buying products and services that are priced substantially 
below the competition — you'll need to find some way to make them feel 
that they aren't taking a risk by hiring you (great references from previ- 
ous clients can do wonders here). Understand, too, that you may not be 
able to keep this approach up for long without doing serious financial 
damage to your company. 

*«* Premium: At the other end of the spectrum from bargain-basement pric- 
ing is pricing at a premium, above your competition. This approach 
works well when the product or service you sell can be differentiated 
from those offered by your competition and you can add value that your 
clients and customers can see and appreciate. Consider a fancy dog- 
washing service that doesn't just come to your home, but that arrives in 
a brand-new, stainless-steel trailer, customized with all the latest tools of 
the trade, hot water, and big fluffy towels for Spot. For the dog owner 
who wants only the very best for her pet, paying a few extra dollars for 
first-class service like this is a no-brainer. 

After you set your prices, keep close tabs on what your competition is doing. 
Are they raising their prices? Lowering them? When your competition moves, 
be prepared to adjust your prices accordingly. 

/ /(/ Part II: Managing Your Money 

Changing your prices 

After you decide on a specific price for a product or service, your clients will 
expect to pay that price for the foreseeable future. No one likes buying things 
from a company that changes its prices every other week (or, in the case of 
gasoline, every other hour). You may, however, need to change your prices at 
some time, either up or down. If the changes translate into a price increase, 
you may have to overcome the resistance of your clients and customers. If 
the changes are price decreases, it's unlikely anyone will object to that! 

In the following sections, we look at price increases, decreases, and stability — 
and how each impacts your business. 

Price increases 

Price increases are not usually a pleasant event for the company that makes 
them — no one wants to tell their clients that they are going to have to pay 
more money for their products — but they are often necessary. Here are 
some of the most common reasons for them: 

t-" You've underpriced your products: After you set a price and begin to 
sell your products and services, you may discover that the money you're 
bringing in isn't enough to cover the expenses of the business and gener- 
ate a reasonable profit. In this case, when you can't or don't want to 
reduce your expenses to bring your costs in line with the money you're 
bringing into your business, you have no other choice (assuming you 
want to stay in business) than to increase your prices. 

*<* Your expenses have increased: If your costs of production increase, you 
can either reduce your profit or increase your price. The choice is up to 
you (although if your expenses have dramatically increased, you may 
have to do both). 

is* You need to cover a client's hidden expenses: If you're performing serv- 
ices for a client and discover costs due to working with that client that 
you didn't anticipate (for example, your client requires you to attend 
meetings twice a week instead of just once a month as you planned), you 
have to find a way to recoup them without reducing your profit. The eas- 
iest way is to increase your price. 

*«* You want to test the marketplace: Sometimes you simply want to test 
the marketplace with a higher price, to see if the quantity of units that 
you sell increases, decreases, or stays the same. Airlines, food manufac- 
turers, and others do this all the time. Who knows? You may discover 
that your customers are more willing to pay a higher price for your prod- 
ucts and services than you ever imagined. 

Chapter 8: The Price Is Right: Deciding How Much to Charge / / / 

v* You don't want the work: What if you don't want to do work for certain 
clients at the low prices you have agreed to? The best way to get out of 
this kind of situation is to raise the prices far beyond your normal rates. 
If the customer decides to pay more, great — you've just won the lot- 
tery! If not, you won't miss it. Peter has been known to do this when he's 
booked up with a lot of projects. If someone is willing to pay the (much) 
higher fare for a new project, he'll make room in his schedule to accom- 
modate it. 


There is no reason to be embarrassed by your prices, and you shouldn't hesi- 
tate for a moment to raise or lower them when it makes sense for your busi- 
ness. If you decide to increase your prices, however, be as forthcoming as 
you can possibly be when you do it, and give your customers plenty of notice 
so they can adjust. 

Price decreases 

In some cases, you find that there's good reason for decreasing your prices. 
Though this may not happen as often increasing your prices, it's bound to 
happen from time to time. The following are the main reasons for decreasing 
your prices: 

*<* You've overpriced your services: If you've overpriced your services, 
you can choose to keep the extra money as profit (making for a very 
nice windfall, thank you very much), or you can give it back to your cus- 
tomers in the form of lower prices, or even a refund or rebate. 

*<* Your expenses have decreased: Decreasing expenses are another good 
reason for lowering your prices. Then again, you can always keep the 
fruit of your decreased expenses as profit and increase the amount of 
money you're able to put into savings. This will motivate you to con- 
tinue to find new ways to cut expenses even further. 

*<* You want to reward long-term clients: Long-term clients always like to 
know that they are appreciated. You can show your appreciation (and 
build their loyalty) by reducing prices for them, either on a one-time 
basis or permanently — perhaps in the form of a discount card, special 
gift, or other premium. 

u* You want to get new work: One way to get new business is to drop your 
prices for new customers as a way to introduce them to your company 
and your products and services. Two-for-one specials for new customers, 
percent-off coupons, and the like are all ways to get new customers to try 
out your company — and ideally stick around. 

u* You want to extend a professional courtesy: Doctors, lawyers, and other 
professionals are noted for extending lower prices to colleagues as a pro- 
fessional courtesy. Why not extend lower prices to your colleagues, too 
(how about other home-based business owners)? 

/ / 2 P art II: Managing Your Money 

As with any other price changes, make sure you lower your prices as part 
of an overall strategy, not just as a reaction to some momentary event. If in 
doubt, leave your prices where they are until the case for changing them is 
more compelling. Not sure if it's time yet? Then it probably isn't. 

Holding the tine 

Many times, you simply want to maintain your prices exactly where they are 
and deny requests to lower or discount them. Here are some strategies to 
help you hold the line on your prices when you feel it's in your best interest 
to do so: 

l** Understand your limits: When you want to hold the line on your prices, 
you first need to have an understanding of the limitations within which 
you can work and the minimum prices you're willing to accept. 

*«* Learn to say no: Far too many people cave in the moment their cus- 
tomers show even one iota of resistance to their prices, no matter how 
well thought out and reasonable they might be. But there is a very easy 
cure to this kind of reaction: Just say no! Know your limits, and when 
someone wants you to go beyond them, be ready, willing, and able to 
just say no. 

v* Be ready to explain why: When you tell people no to a request that they 
think is reasonable, you should be able to explain why. Most people like 
to hear some rationale when what they consider to be sensible requests 
are denied. Responses like "I'll lose money on the deal at that price" or 
"That's a going-out-of-business plan for me" may be sufficient. Responses 
like "Because I got up on the wrong side of the bed this morning" or "I 
always charge you more than the rest of my customers" may not leave 
the best impression with your customers. 

*<* It's not personal — it's business: Separate your personal feelings from 
the necessity of conducting your business in a way that ensures its sur- 
vival. While you may like the feeling of cutting your prices and giving 
away your products and services to anyone who asks, you'll quickly go 
out of business with that approach. Remember: You've got a business to 
run; it isn't a charity. 

v* Be prepared with a counterproposal: Whenever you tell a prospective 
client or customer no, be prepared with an alternative that you can say 
yes to. For example, if you don't want to agree to dropping your price 
from $100 to $75 a unit, as requested by your client, you may be able to 
say yes to $95 — a figure that may well seal the deal for you. 

You're going to face times when you have to hold the line against dropping 
your prices. Although you may lose potential customers in the process, your 
business will be healthier for it. And a healthy business is a business that 
thrives and grows — building long-term income for you and an ongoing part- 
ner for your clients. 

Chapter 8: The Price Is Right: Deciding How Much to Charge / (j 

Deciding whether to discount 

When you're starting out in your home-based business, you need to get the 
ball rolling. Your prices can help with this, or they can stop the ball dead in 
its tracks. In the beginning, getting work — regardless of price — may be 
more important than how much you get paid to work. After you build up 
experience and references, you'll be better able to call the shots regarding 
your pricing. 


In the beginning, you want to get known. You want to develop a buzz about 
your company and its goods and services. You want people to start talking 
about you and your company. As they do, and as more and more clients seek 
you out, you have the leverage to charge them what you're worth. In other 
words, if you're going to discount your products and services, the time to do 
that is as you're getting your home-based business established — not after 
you have developed a solid reputation, base of experience, and prices people 
have begun to rely on. 

By far the biggest mistake home-based businesspeople make is chronic 
undercharging. Chronic undercharging creates a downward spiral that slowly 
eats away at the foundations of your business — the longer it goes on, the 
weaker your business becomes. Eventually, the bottom falls out altogether, 
and you're left with nothing but unpaid bills. 

Chronic undercharging creates the following problems in home-based 


is* Low-ball clients: You tend to attract customers who are much more 
interested in paying as little as they can than in buying the best product 
or service possible. 

is* Low-margin work: You spend far too much of your time on low-margin 
work, rather than on a few high-paid projects with the greatest return for 
your time and money. Because there are still only 24 hours in a day, 
you're working more hours for less pay — a going-out-of-business plan if 
we've ever seen one. 

i^ Burnout: You force yourself into a situation in which you focus far more 
time on your business than you do on your relationships with friends 
and family or on keeping yourself healthy and happy. Burnout is not 
unique to home-based businesses, but it can be a very real problem — 
especially for people who are juggling the demands of kids and family or 
a job that they have not yet left behind. 

Discounting is okay as long as it is done consciously and is in line with long- 
term strategy. It's not okay when it becomes a knee-jerk reaction to every 

/ (11 Part II: Managing Your Money 

potential client who hesitates for a moment when you quote a price. If you're 
going to discount your services, consider some of the following approaches: 

i* Offer every tenth pound of coffee for free. 

v* Give a 25 percent discount on your client's first order. 

V Offer volume discounts. 

*<* Discount for paying before a certain date. 

V Offer a variety of products and services at a variety of price points — 
high, low, and in-between. When faced with a client or client-to-be wanting 
you to discount your prices, you're far better off cutting the products or 
services delivered than cutting your unit price for those services. So, for 
example, if a client balks at your quotation of $1,000 to develop a turnkey 
Web site, don't say: 

"What if I drop my price to $750? Do we have a deal?" 

Do say: 

"No problem. Here 's a complete list of all the different features you '11 get in 
my $1,000 plan. Which features would you like to delete to meet your 

Chapter 9 

Getting Health Insurance and 
Planning for Your Retirement 

In This Chapter 

Identifying the best benefits for you 
Deciding on a health care strategy 
Considering other benefits 

yl^ost people in regular jobs take their benefits for granted. Sick leave, 
# r p holidays, tuition assistance, health care, worker's compensation, 
401(k) savings plans, and more are an expected part of being a full-time 
employee. However, when you start your own home-based business, you 
quickly discover that benefits are nothing to take for granted; some aren't 
available to the home-based businessperson, and those that are have a real 
and substantial cost. 

If you were to ask many prospective home-based businesspeople what 
most concerns them about leaving their jobs behind to start their own busi- 
nesses, it's likely you would hear the same answer: losing benefits, especially 
benefits related to health care. After years of having benefits provided by 
their employers — generally without even having to ask for them — when 
you start your own home-based business, you're taking a step into the great 

v Do you qualify for medical coverage? And even if you do qualify, can you 
afford it? 

*<* What if you're injured and can't work — what then? 

V Will you be able to set up a retirement fund? Are there limits to what you 
can contribute? 

Questions like these — and many, many more — are valid concerns for indi- 
viduals planning to make the move into self-employment, and it's important 
to address these concerns sooner rather than later. 

7 / O P art " : Managing Your Money 

In this chapter, we take a look at the benefits available to the home-based 
businessperson. Because health insurance is the primary concern for most 
prospective owners of home-based businesses, we'll take an especially close 
look at that particular benefit: what to look for in a health care plan and how 
to get it. 

PwVidinq \lour Ou/n Benefits 


When you leave a 9-to-5 job and start your own home-based business, you go 
from getting a variety of benefits to providing for yourself. When you're the 
boss, you have to find the best benefits you can get for your hard-earned 
money, recognizing that what's best for someone else may not be best for 
you. This generally requires a lot of research on your part — you have to do 
your homework. But the payoff is an enhanced quality of life, and a moderate 
expense to bring you this enhanced quality of life is usually well worth the 

The best solution for your benefits likely involves two key factors: 

i* Price your products and services high enough to make sure you cover 
the cost of health insurance. The self-employed are more frequently 
uninsured than other parts of the workforce. 

v* Don't let yourself get taken in by what appears to be inexpensive and 
adequate coverage but turns out to be inadequate. 

Working for yourself doesn't necessarily mean fewer benefits: If you do your 
homework, and if your prices are high enough, working for yourself can mean 
more — and often better — benefits. Instead of being saddled with whatever 
benefit plans your employer decides are best for you, you get to pick and 
choose which benefit plans you want. You pay only for the plans you need 
and can tailor your benefit plans to your own unique wants and desires. 

Is having income in the event you're disabled — and unable to work — partic- 
ularly important to you? Then focus on getting good disability coverage. Do 
you want to ensure that you'll be able to retire comfortably? You can structure 
a retirement plan that meets your exact needs. Or perhaps you'd simply like to 
have the best medical plan you can buy — no problem; it's your choice. 

As a home-based businessperson, you — not someone else — get to decide 
what the best solution is for you and for your loved ones. And you have the 
power to make it happen. Having the ability to decide such important issues 
yourself is one of the things that makes working for yourself such an attrac- 
tive option. 

Chapter 9: Getting Health Insurance and Planning for Your Retirement / / / 

Working benefits into the mix 

Q: This is my fourth year as a freelance transla- 
tor, and it's been a good experience so far. My 
problem is not being able to secure individual 
health insurance due to past health conditions. 
Another concern is how to set aside funds for 
retirement. My income is good at times, but 
some months are typically low. Taking a vaca- 
tion also seems impossible, because I can't 
afford to have no income while I'm away, and I 
may lose clients when they discover I'm not 
available when they need me. Any advice? 

A: You have lots of company in worrying about 
how to provide for benefits like vacations, 
health care, and retirement. These three con- 
cerns are among the most critical issues facing 
those who areorwantto be self-employed. The 
hurdles in lining up such benefits keep too many 
people working in less-than-rewarding salaried 
jobs instead of pursuing their dreams to be their 
own bosses. 

Although lining up these benefits is more diffi- 
cult than it should be or needs to be, doing so is 
one of the roles you must play if you want to 
become your own employer. Try to develop a 
new attitude toward these responsibilities: 
Keep in mind that the cost of benefits such as 
vacation time, retirement funds, and health 
insurance are part of the cost of doing business, 
and you must build them into your fee structure 
and set aside the funds needed to coverthem. If 
you can't afford to take vacations, for example, 
this suggests that you're either not charging 

enough or need to develop a marketing cam- 
paign to bring in more business during the slow 
times you mention. 

That said, here are some options for getting 
past the difficulties involved in lining up these 

j-" Health insurance: Obtaining affordable 
health insurance is a national crisis, espe- 
cially for the self-employed. One option is 
to go through a professional associa- 
tion, which may be able to negotiate cover- 
age for their members. In addition, some 
states — such as California, Colorado, 
Connecticut, Maryland, and Texas — have 
a mandatory small-business insurance pro- 
vision. If you have two people working in 
your company (which can include your 
spouse!), you can get health insurance. For 
more information about this option, contact 
an insurance agent. 

*<" Retirement: The real solution lies in passing 
legislation that allows the self-employed to 
invest half of the Social Security tax that 
you pay (the self-employed pay both the 
employer and employee share) into a pri- 
vate retirement account. In the meantime, 
here's a suggestion: Take 10 percent (or as 
high a percentage as you can) off the top of 
everything that comes in, and put it into a 
SEP-IRA or other retirement account. Make 
this a habit. 

Choosing \lour Health Care Coverage 

Of all the different kinds of benefits available to most workers today, one in 
particular creates the most concern for people considering a move to start- 
ing their own home-based businesses: health insurance. Why? Because 

/ (o Part II: Managing Your Money 

health insurance has a (much-deserved) reputation for being hard to obtain 
for individuals, it's often expensive, and the consequences for not having suf- 
ficient coverage can be financially catastrophic — particularly in the event of 
a major or prolonged illness. 

In fact, the fear of having inadequate health insurance — or, even worse, no 
coverage at all — keeps many people from making the move to starting their 
own businesses. Instead, they remain stuck in jobs they don't like, getting 
paid less than they feel they should, in order to ensure that their health 
needs are covered. 

^jjUJE^ The simple fact is that you, as a home-based business owner today, have 

more options available to you than ever before — both in the kinds of cover- 
age available to you and in the different approaches you can take to get the 
coverage you want. In some cases, the health care plan you select as a home- 
based business owner may provide better coverage for you and your family 
for a lower premium than you've been paying in your regular job. 

The spectrum of health coVevaqe 

When starting your own home-based business, you have a number of health 
care choices, all of which boil down to either obtaining health insurance or 
going it on your own. 

At one end of the spectrum, fee-for-service is the traditional form of medicine 
(some today would call it old-fashioned) that many people grew up with. 
Under a fee-for-service health care plan, you decide which doctor you want 
to see, schedule your own exam, get diagnosed and treated, and make your 
payment directly to the doctor on the way out the door. 

At the other end of the spectrum is a particular kind of health insurance, the 
health maintenance organization — also commonly known as an HMO. In an 
HMO, you agree to have all your health care needs taken care of by the HMO 
and its administrators and physicians. The HMO hires and pays the doctors, 
nurses, and physician's assistants who diagnose your illnesses; the HMO 
builds or leases the facilities where you go for medical examinations; and the 
HMO decides whether or not to authorize and pay for your treatment. In many 
cases, you never even see a bill or invoice, although most HMOs today require 
at least a nominal payment at the time of service, known as a co-payment, and 
these are increasing. 

Each of these extremes on the health care spectrum — and all the variations 
in between — has its good and bad points. By going on your own, you have 
maximum control and flexibility over your health care, but unless you're well 
off financially, a catastrophic injury or illness could not only put you out of 
business, but also potentially bankrupt you. At the other end of the spectrum, 
in exchange for the peace of mind that HMOs offer, you give up a large amount 

Chapter 9: Getting Health Insurance and Planning for Your Retirement / ( y 

of control over the management of your health care, as well as the flexibility to 
use whatever doctor you like, whenever you want. 

When seeking health insurance for your home-based business, you have a 
number of options available to you: 

w* If you start up your home-based business while you're still working in 
your regular job, you can simply keep your current health care plan as 
it is. This is likely to be a relatively inexpensive option for you and your 
business — particularly if your employer covers the cost of your health 
care plan. 

V If your spouse has health insurance at work, you can decide to use his 
or her plan to meet your health care needs as you establish your own 
home-based business. This, too, can be a relatively inexpensive option 
for you and your business. 

*«* If you decide to leave your regular job to start your own home-based 
business, and you live in the United States, COBRA — the Consolidated 
Omnibus Budget Reconciliation Act — requires your employer to extend 
health care benefits to you for a minimum of 18 months (and in some 
cases, even longer) at the same rate offered to all other company employ- 
ees (a piece of which most companies pay as an employee benefit) for 
comparable coverage. After the 18-month period elapses, you can gener- 
ally convert to an individual plan with little muss or fuss, but usually at a 
significantly higher cost. (When Peter's COBRA plan expired a year ago, 
the cost to cover his family of five jumped from $750 a month to more 
than $1,350 a month. He shopped around for and found a new plan within 
minutes after he got that particular bit of news.) 

*<* Find coverage on your own. You can conduct your own search for health 
coverage (a growing number of Internet sites are dedicated to helping 
small business owners select and apply for health insurance — do a key- 
word search on a search engine). Alternatively, a good insurance agent 
or broker can find the best coverage for you while saving you precious 
time in the process. 

As a home-based businessperson, you have the luxury (and the burden) of 
almost unlimited choices when dealing with your heath care. From fee-for- 
service to HMO — the choice is up to you. The right decision depends on 
what's best for you, your family, and your business. 

Fee-for-sen/ice and indemnity 
health care plans 

Under traditional fee-for-service medical care, what's good for the patient is 
also generally good for the doctor, because their goals are aligned. Fee-for- 
service is where a doctor is paid directly for her medical services — whether 

/ oQ Part II: Managing Your Money 

by the patient or by an insurance company or other entity. Assuming the 
patient has enough money for the procedure, he is free to go to any doctor or 
hospital he chooses. While this method of payment is fine for simple, rela- 
tively low-cost procedures, it leaves the patient at tremendous financial risk if 
he becomes seriously ill or injured and requires extensive testing, hospital- 
ization, or treatment. 

With the traditional fee-for-service, on-your-own payment method, patients 
have the greatest freedom to choose their doctors and hospitals. They can 
get their health care directly — at any point in the system — without exter- 
nally imposed limits. However, they often pay a lot of money for this privi- 
lege. Fee-for-service is the least regulated form of health care, and fees can be 
unpredictable. It is this unpredictability and the generally high cost of fee-for- 
service medicine that are driving it toward extinction — despite the nostalgia 
that many people have for it. Today, this is sometimes called going bare — 
that is, without insurance. 

A desire to limit patient financial risk within the traditional fee-for-service 
approach has led to the emergence of indemnity insurance plans. Under 
indemnity plans, insurance companies agree to reimburse — or indemnify — 
policyholders for a fixed percentage of their medical bills after payment of a 
pre-established deductible. It is common for patients with this form of med- 
ical insurance, for example, to pay 20 percent of a medical expense and for 
their insurance company to pick up the remaining 80 percent. Although 
indemnity plans still leave patients with some amount of financial risk, many 
patients like these plans because they are free to select most any doctor or 
hospital they desire. 

Many home-based business owners have found that it makes sense to take 
advantage of a fairly recent wrinkle in the tax laws: medical savings accounts 
(MSAs). MSAs allow you to set aside pretax dollars to pay for routine (and 
relatively low-cost) medical procedures such as annual physicals, eye exams, 
dental checkups, and the like while reserving insurance coverage for high- 
cost, catastrophic health events such as major surgery or cancer treatments. 

Managed care plans 

Managed care is the overall term applied to a system of health care in which 
an individual pays a fixed premium for a guarantee of all-encompassing, pre- 
ventive, and therapeutic health care with minimal additional out-of-pocket 
expenses. The entire universe of managed care systems covers an incredibly 
diverse range of programs — from managed indemnity insurance to HMOs. 
Although it is sometimes difficult to draw distinct lines separating one form 
of managed care from another, all managed care programs implement formal 
policies and procedures to control three common characteristics: 

Chapter 9: Getting Health Insurance and Planning for Your Retirement I O 1 



u* Access 
V Cost 
v* Quality 

By placing strict limits and controls over these three areas, managed care 
providers are able to provide complete, quality medical care to their mem- 
bers at a lower cost than other forms of health care. For example, one way 
that certain kinds of managed care providers control costs is by hiring their 
own doctors and nurses. Costs are also controlled by making concerted 
efforts at providing preventive care to patients. It is generally far less expen- 
sive to prevent a serious illness than to cure it. 

Health maintenance organizations (HMOs) 

An HMO is a form of managed care that either operates its own health care 
facilities or contracts with hospitals and doctors to provide health care serv- 
ices at predetermined rates. The membership fees go into a pool of money 
that pays for doctors, nurses, equipment, facilities, and the other costs of 
providing health care services to members. Any money left over is profit. 
After the membership fee has been paid, the greatest risk to the HMO is pro- 
viding too much care or care that is too expensive. 

All HMOs rely on the primary care physician to control costs by controlling 
access to the services of the HMO. A primary care physician is a doctor whose 
job it is to assess a patient's medical condition and determine which services 
are required to bring him back to a state of good health at the minimum neces- 
sary cost. Primary care physicians are often under considerable pressure to 
keep costs down, so their jobs sometimes appear to be to find ways to deny 
care rather than provide it. Because of this perception, primary care physi- 
cians are often known as gatekeepers. 

Comparison shopping among different HMOs can be frustratingly difficult. 
Sophisticated, often confusing issues require your consideration, including 
a wide array of different co-payments (both for services and for prescribed 
drugs), coverage limitations and exclusions, waiting periods, and more. At 
times, even the information sources you use may not permit easy compari- 
son of one HMO to another. Here are some things to consider: 

Your health care needs: You and your family want high quality, low costs, 
and easy access to your health care provider and a broad range of cov- 
ered services. But there are limits set by your employer, by the govern- 
ment, or by you in terms of the amount of dollars you're willing and able 
to put into your quest for quality health care. Further, it is unlikely that 
you will find a plan that meets all your needs at a price you can afford. 
Your final selection will, therefore, involve some compromise. 

I $2 Part II: Managing Your Money 

Unless you have unlimited resources to pour into purchasing your health 
care, selecting an HMO also forces you to face some limits. Finding the 
best HMO for you and your family involves striking a balance between 
your health care needs and wishes and the resources that you have avail- 
able to purchase them. 

*«* Other deciding factors: Although you have your own unique medical 
needs, every heath care consumer should consider several factors when 
shopping for an HMO. Depending on your personal situation, you may 
have several health plans to choose among, or you may have only one 
or two. Whatever the options available to you, you need to carefully 
weigh the advantages and disadvantages of each before you make your 
final decision. 

After you have enrolled in a plan, it may not be easy for you to switch 
plans if you discover you made the wrong choice. Take your time to 
review each plan carefully, and consider the following in your decision: 

• Basic needs versus extras: With medical care, keep in mind the dif- 
ference between what you need and what you want. Does the HMO 
you have chosen provide all the basic health services that you need 
to maintain your health or return you from illness? Does it also pro- 
vide the extras — such as a pleasant and relaxing environment, 
clean and modern hospitals, or free car seats for newborns — that 
you consider important to your health care experience? 

• Access: When you consider an HMO, does it provide you with 
access to the full range of physicians and medical facilities that are 
required to maintain your good health? Does the HMO offer spe- 
cialists who are trained and competent in orthopedics, pediatrics, 
surgery, and so on? Are appointments readily available, or will you 
be required to wait long periods of time to see a doctor? Will you 
have access to 24-hour-a-day emergency-room care at a reasonable 

• Choice: A real hot button for many health care consumers is the 
right to see the doctor of their choice. Although some HMOs are 
restrictive and offer few care options, others offer a wide variety of 
doctors, clinics, and hospitals to choose among. When considering 
an HMO, be sure to find out how flexible your plan will be. Will the 
HMO assign you to a primary care doctor, or will you be able to 
make your own choice? If you don't like your doctor, can you easily 
switch to another? Will you have to go to a specific clinic or hospi- 
tal, or will you have the option to select which one you want to go 
to? Ask an insurance agent what would happen under different 
hypothetical situations. 

• Cost: The price of health care is always a major issue for health 
care consumers. Is the plan affordable? Will you receive a full range 

Chapter 9: Getting Health Insurance and Planning for Your Retirement / Qj 

of services for an amount you can afford? If you're comparing plans, 
what do you get in the higher-priced plan that the lower-priced plan 
doesn't offer? Should you consider add-ons to the plan, such as 
point-of-service options? 

• Coverage: Every HMO is different — some provide more extensive 
coverage than others. What does the plan cover? Does it include 
office visits and hospital stays? How about eye and dental care? 
Are certain procedures excluded from the plan? Do you under- 
stand how your HMO defines experimental or unproven cures? 
What about pre-existing conditions? If you have asthma when you 
join the plan, for example, will your new HMO cover it? If you're 
outside the plan area, will the plan pay for emergency care at 
another hospital? 

• Ease of use: Every form of health care involves a certain amount 
of red tape and bureaucracy — HMOs are no exception. Are office 
hours convenient, and are facilities, clinics, and hospitals within a 
reasonable distance from your home or work? Does the plan offer 
evening or weekend appointments? Are special phone lines avail- 
able to make appointments or ask questions that don't require a 
physician's intervention? What kinds of paperwork will you be 
required to fill out, and how much will there be? 

• Quality: The old adage that you get what you pay for is often true. 
Are the doctors and nurses in the plan top-notch, or are they 
something less? Are the facilities modern, clean, and large enough 
to handle the needs of the plan's members? What's the overall 
quality of care dispensed by the HMO — is it excellent, good, or 
just adequate? How does the plan score on member satisfaction? 
Does the HMO have a history of extensive member complaints and 
grievances? Is the HMO National Committee on Quality Assurance 
(NCQA) or federally qualified? 

As you research your health care options, you will quickly find signifi- 
cant differences among plans. It's your job to determine whether a spe- 
cific plan meets your needs. While the HMO's glossy brochures and 
glowing advertisements may seem attractive, try to get beyond their 
sugar-coated exteriors to the real story. Ask your insurance broker 
pointed questions. Which plan did he pick, and why? Is he happy with 
his choice? Why or why not? Is he planning to switch to another plan 
when he gets the opportunity? 

Ultimately, you're faced with a choice that balances your health care 
needs with the resources you have available to pay for those needs. The 
best choice for you is the choice that closely balances these two com- 
peting demands. 

fOQ Part II: Managing Your Money 

San Diego cares about its businesses 

In most cities in the United States, small busi- 
nesses are left to fend for themselves when it 
comes to finding affordable health care solu- 
tions, but the city of San Diego, California, has 
decided to change all that. Specifically 
designed for small businesses with two or more 
employees, the City Care Benefits Plan — 
sponsored by the Business Improvement 
District Council — offers comprehensive group 
health, dental, and vision plans at the kind of 
rates usually available only to very large busi- 
nesses. A variety of procedures and services 
are fully covered under these plans, with small 
co-payments of $10 to $20 for office visits and 
drug co-payments also between $10 to $20. 

With this progressive benefits plan, San Diego 
has addressed a very important need in the 
community. Says Scott Kessler, CEO of the 
Business Improvement District Council, "Many 
small business owners forgo health insurance 
due to cost, quality, and administrative obsta- 
cles. The City Care Benefits Plan is designed to 
meet the unique needs of small businesses." 
Considering that 85 percent of the uninsured 
population of San Diego works for small busi- 
nesses, the City Cares Benefits Plan may have a 
major impact on many thousands of employees 
and their families. For more information, visit the 
Seaman & Company Web site at www. seaman 
andco .com. 

Preferred prot/ider organizations (PPOs) 

Some years ago, in an effort to contain spiraling costs, indemnity insurers 
introduced a new form of health care — the preferred provider organization 
(PPO). In a PPO, the insurer strikes deals with selected physicians to provide 
care on a discounted fee-for-service basis. Patients are then given financial 
incentives to use physicians on a list provided to them by their insurance 
company. PPOs can be thought of as a transitional arrangement between fee- 
for-service and HMOs because they exhibit some elements of a loosely orga- 
nized managed care network while maintaining a degree of physician choice 
and/or service locations for the patient. They're also like fee-for-service plans 
in the sense that the more doctors do for you, the more they get paid. 

Typical PPOs provide some expense predictability for their enrollees by 
having maximum out-of-pocket limits, but they often have exclusions and 
waiting periods for pre-existing conditions, which could include pregnancy. 
Within a PPO, preventive services are minimal, but most have disease screen- 
ing and usually provide smoking-cessation programs. If you go out of the net- 
work for your care, your out-of-pocket costs increase. 

Other health care coverage 

A number of other health-related benefits, besides your main health care 
plan, are available to you. Depending on your situation, they may or may not 

Chapter 9: Getting Health Insurance and Planning for Your Retirement / Qj 

make sense for you and for your business. Be sure to study your options 
carefully before committing to a plan. 

«-" Dental: You can find a variety of dental insurance plans to choose among. 
While many have high deductibles and rigid guidelines for what they'll 
pay for — and how much — a dental plan can be a godsend in the event 
of a catastrophic dental problem, accident, or illness, or if your teeth are 
simply falling apart. 

*«* Vision care: Vision care plans generally pay for eye examinations and 
sometimes for glasses or contact lenses as well. Elective procedures 
such as surgery to permanently correct nearsightedness are usually not 

u* Gyms and health clubs: Many large companies have their own on-site 
gyms and health clubs. While you may not have the room (or the money) 
to set up your own on-site gym, don't let this stop you from joining a local 
gym and working out regularly. 

Ways to cut your health care costs 

While health care plans are becoming easierto 
obtain and more flexible for their users because 
of increased competitive pressures within the 
industry, the cost of health care continues to 
rise. In his book Human Resources Kit For 
Dummies (Wiley Publishing), Max Messmer 
offers the following advice for cutting your 
health care costs: 

w Affiliate with the largest group possible. 

Although you can find exceptions, the 
larger the group that's insured, the more 
competitive the rates tend to be. Instead of 
seeking coverage as a one-person, home- 
based business, check into health care 
plans offered by local chambers of com- 
merce, industry associations, alumni asso- 
ciations, and professional organizations. 
Most offer health care plans with competi- 
tive rates. 

w Increase the deductible (co-pay). You can 

save anywhere from 10 to 50 percent on 
your premiums simply by increasing your 
deductibles or, in the case of HMOs, your 
co-payment. This can be particularly effec- 
tive if you aren't a big user of your health 

care plan. Check with your health plan 
provider to see what your options are. 

j-" Consider working with a benefits consul- 
tant. It's just about impossible for anyone 
who isn't fully dedicated to studying all the 
different health care coverage options 
available to know if he or she is getting the 
plan that is the best for his or her business. 
A benefits consultant is fully dedicated to 
that task and can be a genuine asset — 
both in locating the right plan for you and in 
negotiating the best rates possible. Ask 
friends and business associates for a refer- 
ral to a qualified consultant, or check the 
Yellow Pages. 

And here's a tip from us: Pay for health insur- 
ance above the //netaxwise (with pretax dol- 
lars) by incorporating as a C corporation (see 
Chapter 1 1 for more information on incorporat- 
ing) and reimbursing all medical expenses or by 
getting a high-deductible plan with a Health 
Savings Accountthat enables you to have more 
control over how you spend your health care 


Part II: Managing Your Money 

Because many health care plans don't include dental, vision, or access to 
gyms or health clubs, you need to decide if they are important enough for 
you to pay for out of the proceeds of your business. 

Considering the Need for Other Benefits 

If you currently work — or have worked in the past — in a regular business, 
you know that you may want to provide yourself many other benefits besides 
health insurance. Although insuring yourself against a catastrophic loss in 
the event of a serious or protracted illness is critically important for most 
people, other benefits can help you protect your income, save for the future, 
and provide financial and psychic benefits. 

In this section, we discuss the most common benefits besides health care. 

Income protection 

Imagine that you're a professional writer, as is Peter, one of the authors of 
this book. And imagine that you depend on your physical ability to use your 
computer keyboard to do your writing. Now imagine that you are diagnosed 
with carpal tunnel syndrome or a repetitive-motion injury that prevents you 
from using your computer for weeks or even months or years. What would 
you do, and how would you and your family survive the loss of income that 
such an injury would bring about? 

Benefits in the income protection category protect workers and owners from 
just these kinds of potentially disastrous financial events. 

v* Disability insurance is a form of insurance that pays a percentage of 
income — generally less than 100 percent — in the event that injury 
or illness prevents a worker or owner from performing his or her job. 
Available to home-based businesses in either short- or long-term ver- 
sions, they can be very expensive. 

u* Workers' compensation provides a fixed amount of income to workers 
who are injured on the job and is required of companies with three or 
more employees. Some states provide for the business owner's also 
being covered. 

*«* Unemployment insurance provides a fixed amount of income to work- 
ers who lose their job through no fault of their own and is required by 
federal and state law of employers with one or more employees for at 
least 20 weeks in a calendar year. 

Chapter 9: Getting Health Insurance and Planning for Your Retirement / © / 

For most home-based businesses, long-term disability insurance is the only 
form of income protection benefit to be seriously considered. If you eventu- 
ally hire employees, workers' compensation and unemployment insurance 
may be a requirement for your home-based business. 

Life insurance 

Of course, no one likes to think about dying and leaving our loved ones with- 
out a source of income. But if you die without having established some sort 
of retirement fund or a life insurance policy, that's exactly what will happen. 
Life insurance pays whomever you designate as your beneficiary a lump sum 
of money if you die, thus providing some peace of mind that their financial 
needs will be taken care of in the event of your death. 

v* Life insurance policies are widely available, affordable, and easy to get. 
Find a good broker, and have him or her explain the advantages and dis- 
advantages of the different kinds of life insurance, including term, uni- 
versal, and whole life. 

u* Dependent life insurance provides coverage for the spouse of a home- 
based business owner and is often available for a small additional charge 
beyond your own policy. 

Life insurance is an essential part of the benefits package of many home-based 
businesses. While the money paid out in the event of your death won't do you 
any good personally (remember: you can't take it with you!), the peace of mind 
that it provides knowing that your loved ones will have the financial where- 
withal to continue without you is often well worth the price of admission. 

Retirement and saVinqs plans 

Retirement and savings plans are a regular part of most businesses, and 
they can and should be a part of your home-based business. As we discuss in 
Chapter 4, the prices you charge for your products and services should be 
sufficiently high to provide you with a decent income and benefits. 

Most home-based businesspeople are probably aware that Social Security 
is not the best option for ensuring a comfortable and worry-free retirement. 
Social Security alone simply can't fill the bill. Unless you have a retirement 
plan or pension from your previous employer, the only way you're going to 
have any sort of retirement plan for your home-based business is if you 
create one yourself. Be sure to do just that to provide a reliable source of 
income after you leave the world of work behind once and for all. 

f OO Part II: Managing Your Money 


Here are a few different options available to you: 

*<* Simplified Employee Pension (SEP-IRA): Any home-based businessper- 
son with at least some self-employment income can set up a tax-deferred 
SEP-IRA account to provide steady income in retirement. SEP-IRAs are 
easy to open and can be maintained with minimal paperwork or red 
tape. The beauty of the SEP-IRA is that you're allowed to contribute 
up to $30,000 or 15 percent of your business's net income per year, 
whichever is less. This could be ten times higher than you could con- 
tribute to plain old IRAs. 

is* Keogh: Keogh plans offer the highest limits for tax-deferred contribu- 
tions, but they are complicated to set up and maintain. They come in 
two types: 

• Defined contribution plan, which fixes the amount and the source of 
the contributions (contributions are limited to $30,000 or 25 per- 
cent of your earned income for the year, whichever is less) 

• Defined benefit plan, which attempts to pay out a particular sum of 
money each month in retirement (contributions are limited to the 
amount needed to eventually produce an annual pension payment 
of the lesser of $130,000 or 100 percent of your average compensa- 
tion for your three highest years) 

is* SIMPLE: The Savings Incentive Match Plan for Employees (SIMPLE) allows 
employees to make elective contributions of up to $6,000 per year and 
requires employers to make matching contributions of up to 3 percent of 
each employee's pay. Alternatively, you can decide to make a blanket con- 
tribution of 2 percent of each participating employee's pay regardless of 
whether he or she makes any elective contributions. 

Each of these options has its pluses and minuses, and one may be better for 
your business than another. Consult an accountant or professional tax expert 
before you decide on a particular plan. After you set your plan up, you're 
pretty much stuck with it. Changing plan types is generally not encouraged 
by the tax code, and Congress has built in a variety of disincentives to ensure 
that you get the message. 

Time off 

Most regular businesses provide a wide variety of different forms of time 
off, including holidays and vacations. As the owner of your own home-based 
business, you get to decide which days you take off. In a home-based busi- 
ness, however, time off works a bit differently than it does in a regular job. 
In a regular job, you're usually paid for holidays and vacation leave — even 
though you don't actually work while you're on leave. In a home-based busi- 
ness, if you don't work, you don't get paid. 

Chapter 9: Getting Health Insurance and Planning for Your Retirement / Qy 

Regardless, be sure to set aside time off to get out of the office and spend time 
recharging your batteries with family and friends. 

*-" Holidays: A number of standardized holidays are available for you to 
choose among, including Memorial Day, Independence Day, Labor Day, 
Thanksgiving, and Christmas. You decide whether you're open for busi- 
ness on those days. 

i^ Vacations: Many small business owners find themselves working far 
harder than they ever did working in a regular job. This makes setting 
aside vacation time away from your business even more important. 

Make taking time off a regular part of your benefits package and an estab- 
lished part of the way you do business — your attitude, as will your relation- 
ships with friends and family, will benefit. 

Child care 

Working at home offers you a unique advantage that working outside the 
home can't — you can be at home with your young children every day of the 
week, if that's what you want. For parents who want to work but who don't 
want to sacrifice their family lives to do so, this is truly the best of both 
worlds. However, if you work at home and have young children, you need 
to figure out how to keep them out of your way (and out of the way of your 
clients and customers) during your normal working hours. This generally 
means obtaining some sort of child care. 

You basically have two options: 

W On-site child care: Hire a babysitter or nanny to take care of your child 
in your home on a regular schedule. If you have in-town relatives — 
perhaps a child's grandparent or aunt or uncle — even better! This is 
often an ideal situation, because you're nearby if needed, but you're still 
able to close your office door and leave your family life behind while you 

u* Off-site child care: Numerous off-site child care facilities are available to 
the home-based businessperson. From individual day-care providers to 
programs at schools and churches to neighborhood centers, you have 
plenty of options for ensuring quality care for your child. 

Flip to Chapter 15 for information on developing your own thriving home-based 
business and still having the contact and relationship with your children that 
you desire. 

lyO Part II: Managing Your Money 

Chapter 10 

Getting a Grip on Taxes 
and Deductions 

In This Chapter 

Knowing what and when you need to pay 
Taking the home-office deduction 
Figuring out what else you can deduct 
Reducing your tax burden 
Collecting sales taxes 

There's an old saying about taxes, generally attributed to Benjamin Franklin, 
that sums up the opinion of just about every businessperson we know: 
"In this world, nothing is certain but death and taxes." And for some business 
owners who pay a lot of taxes, taxes may seem the most certain thing of all. 

According to the General Accounting Office, small business owners (including 
most home-based businesses) face more than 200 different Internal Revenue 
Service forms and schedules to pick and choose among in any given tax year. 
These forms and schedules — with more than 8,000 lines, boxes, and blanks 
to be filled in with your business's unique set of numbers — are accompanied 
by more than 700 pages of instructions. And although no one business would 
ever have to use anything approaching all 200 of these IRS forms and sched- 
ules, the paperwork problem is so pervasive that it can easily threaten to bury 
the unwary home-based business owner. 

Is it any wonder that the first thing many savvy home-based businesspeople 
do when they start their businesses is hire a tax lawyer, certified public 
accountant (CPA), or both to help them plan and file their taxes? For many 
home-based business owners, the investment in a good tax planner can pay 
off many times over as the business grows and evolves. 

1 y2 Part II: Managing Your Money 

This chapter is all about taxes: who pays them, when to pay them, how much 
to pay, and how to handle sales tax. As famous smart guy Albert Einstein 
once said, "The hardest thing in the world to understand is income tax!" And 
while our intent is not to make you an expert on the subject of taxes (we 
don't want to put any home-based accountants out of business), we do want 
to provide you with a basic understanding of the topic — enough to get your 
business started and be able to talk intelligently with an accountant, tax plan- 
ner, or friendly IRS agent. Check out Taxes For Dummies, by Eric Tyson (Wiley 
Publishing), for detailed tax information. 

Understanding Which Taxes to Pay — 
and When to Pay Them 

The tax code may well be the most complicated piece of legislation in any 
country, but during the course of our extensive research for this book, we 
were fortunate to find what have to be the clearest, most concise, straightfor- 
ward instructions we have ever seen for determining how to figure out the 
amount of money you owe in taxes for your home-based business. In fact, 
they are so clear, concise, and straightforward that we are frankly surprised 
that the IRS has not already put them into effect. Read them and see what 
you think: 

1. Add up all the money you took in from your business during the 
course of the year. 

2. Write that exact amount on a check made out to the Internal Revenue 

3. Drop it in the mail. 

Okay, so maybe things aren't quite that bad, but for many owners of home- 
based businesses, it sure does feel like a lot of their hard-earned money goes 
to pay taxes. By the time you pay self-employment tax (the government's way 
of collecting payments for Social Security and Medicare from people who are 
self-employed), state and federal income taxes, excise and property taxes, 
and miscellaneous local taxes or assessments, you can easily be writing 
checks to all sorts of government agencies for 30 to 50 percent or more of 
your business's revenues. 


Just like any other business, home-based businesses are required to pay 
income tax to the federal government and, in most cases, to the state govern- 
ment in which the business is located. The forms you use to calculate and file 
your taxes and the kinds of expenses you're able to deduct depend on the form 
of business you select: sole proprietorship, partnership, limited liability com- 
pany, subchapter S corporation, or regular corporation. And while home-based 

Chapter 10: Getting a Grip on Taxes and Deductions / yj 

businesses are granted some special tax breaks by the government — unless 
you have some really good tax deductions or you're not making any money, 
you're still going to have to pay at least some tax. 

And that's one thing you can count on. 

Who has to pay) 

Within the United States, all businesses (except for partnerships, which file 
an information return) are required to file an annual income tax return. It 
doesn't matter if you make money or lose money; you still need to file a 
return. This means you. 

Of course, we're assuming that your business is really a business and not a 
hobby. Suppose, for example, that you're an avid collector of Star Wars figures, 
and you buy and sell them on a regular basis. Not only that, but you're also 
taking a home-office deduction and writing off other business expenses — 
but you aren't conducting this activity on a businesslike basis (that is, to make 
a profit). If this is the case, the IRS doesn't allow you to deduct any of your 
expenses as business expenses — including the all-important home-office 
deduction (more about that in the "Taking a Look at the Home-Office Deduc- 
tion" section, later in this chapter). And if you have been taking these deduc- 
tions for years, get audited by the IRS, and find that these deductions are 
disallowed, the financial impact on you and your "business" could be more 
than a simple inconvenience — it could be devastating. 

The hobby toss rule 

Aside from the freedom that having one's own home business can provide, 
one of the main reasons for starting a home-based business is for the finan- 
cial benefits — including taxes. If you want to benefit from the tax deductions 
and other advantages that having your own home-based business affords you 
(which can be considerable), it's in your interest for the IRS to agree that 
indeed you're operating a business and not a hobby. 

But how do you know whether your enterprise is a business or a hobby? 
We're glad you asked. 

The place to start is a law established by Congress called the hobby loss rule. 
In essence, the hobby loss rule says that to be considered a business instead 
of a hobby, your activity must have made a profit in at least three of the pre- 
ceding five years. If your business is a new one — without an established 
track record of profit — or if it is truly a business but not a profitable one 
(after all,, founded in 1995 and with a current market value in 
the billions of dollars, only recently showed a profit) — it may still qualify as 
a business instead of a hobby. 

lylX Part II: Managing Your Money 

Web sites that can make your job less taxing 

While Congress continues to mystify the tax 
codes, the Internet is doing just the opposite. In 
response to popular taxpayer demand, a 
number of Web sites have sprung up to dis- 
pense help and assistance. These work hard to 
take the mystery out of preparing your income 
taxes. Here are some of the best: 

f OPEN: American Express Small Business 
Network: This site contains articles address- 
ing a variety of income tax issues of partic- 
ular interest to small and home-based 
businesses at www. ameri can express . 
com/smal 1 business. 

f CCH Business Owner's Toolkit: This com- 
prehensive guide to starting and building a 
successful business has an extensive tax 
section at www. tool kit .cch .com. 

TurboTax: Intuit offers support for its 
TurboTax software and tax help at its online 
tax center 24 hours a day, seven days a 

IRS Online: For home office startup informa- 
tion and online publications and forms, go to 

i ndex . html . 

LA. Times Online: The Times' burgeoning 
Web site offers much helpful tax and busi- 
ness information at www. 1 a times .com/ 
taxes (you'll need to register to read the 

State tax forms: Too bushed to mount a 
search for your state income tax forms this 

year? Try www. 

The IRS has established nine factors to help decide on which side of the fence 
to place your business. You don't necessarily have to satisfy all of these crite- 
ria, but you can bet that the more you do meet, the better your position in the 
event that an IRS agent comes knocking. 

Here they are: 

i^ The manner in which the taxpayer carries on the activity: If your busi- 
ness is really a business, it should conduct itself like a business, not like 
a hobby. For example, a business establishes accounting records and 
develops business plans and strategies. It obtains a business license and 
adheres to any zoning or other legal requirements. It establishes finan- 
cial goals, abandons strategies that don't help it achieve its goals, and 
constantly seeks out and executes new strategies that do help it achieve 
its goals. It strives to make a profit and avoids financial losses. The 
owner establishes systems and resources dedicated to the business, 
such as dedicated computers and phone lines, Internet connections, an 
office, office equipment and supplies, a business logo or trademark, sta- 
tionery, and business cards. 

w* The expertise of the taxpayer or his or her advisers: The knowledge 
and expertise that a home-based businessperson has in running his or 
her particular line of business can be a significant factor in deciding 

Chapter 10: Getting a Grip on Taxes and Deductions / yj 

whether a particular activity is a business or a hobby. In fact, a person's 
knowledge or effort in managing a successful enterprise has been con- 
sidered by the courts in several cases. Similarly, if the home-based busi- 
nessperson has retained an accountant, a lawyer, and other experts to 
provide business advice, this would tend to indicate that the activity is 
indeed a business and not a hobby. 

u* The time and effort expended by the taxpayer in carrying on the 
activity: Although the IRS doesn't expect you to spend your every 
waking hour working in your home-based business, it does expect you to 
show some sort of personal commitment of your own time and effort on 
behalf of the business. If, for example, you develop, create, and deliver 
all of your business's products or services, and this takes an average of 
20 hours a week to accomplish, you clearly have a major commitment of 
time and effort. And if you quit another job or go to part-time status so 
that you can devote even more energies to your new venture, you're 
investing much time and effort to your activity. 

u* Expectation that the assets used in activity will increase in value: Every 
business has assets, some more valuable than others. And although some 
business assets — such as computers, printers, and vehicles — tend to 
decrease in value over time, other assets — such as real estate and intel- 
lectual property — tend to increase over time. Most businesses start out 
in a loss position, so even if the activity isn't making a profit at the time, a 
new home-based business owner can demonstrate that he or she expects 
the company's key assets to appreciate, indicating that the activity is a 
business, not a hobby. 

u* The success of the taxpayer in other activities: A home-based business- 
person may have a personal history of establishing a number of busi- 
nesses that are initially unprofitable, but which he or she then shepherds 
into operations that are both profitable and successful. A track record like 
this can go a long way to convincing an outside observer that a particular 
activity is truly a business, though one that is not yet profitable. 

u* The taxpayer's history of income or losses in this activity: If your activ- 
ity is generating a profit, it's clearly a profit-making activity. The fact that 
an activity does not generate profits, however, doesn't necessarily mean 
that it's not engaged in for-profit activities. The first years of a business 
can be a time of building and securing assets that the business needs to 
operate effectively. After these expenses are paid and revenues begin to 
climb, the activity should begin to show a profit. In some cases, extraor- 
dinary situations, such as the loss of a major client or the death of a 
principal in the business, may push the business into unprofitability for 
a period of time. Such explanations may help show that the activity is a 
business. Years and years of activity with no profit to show for it, how- 
ever, may indicate that the activity is indeed a hobby and not a business 
for tax purposes. 

I yO Part II: Managing Your Money 

f" The amount of occasional profits, if any, that are earned: It's not 
enough to simply make a dollar or two profit in three years out of five. 
The amount of the profit made has to be significant. So, for example, a 
home-based business that shows a profit of $10,000 in each of three 
years out of five will likely have no problem whatsoever establishing 
itself as a business. A home-based business that showed only $10 profit 
in each of three years out of five may have a serious problem defending 
its status as a business and not as a hobby. 

i^ The financial status of the taxpayer: Are you earning most of your money 
from your home-based business or from another source, perhaps a regu- 
lar full-time job? If most of your income comes from your home-based 
activity, your case that the activity is a business is greatly enhanced. If, 
however, most of your income comes from another source, you'll have a 
harder time proving that your home-based activity is a business and not 
a hobby. 

i* Elements of personal pleasure or recreation: Is the activity carried out 
purely for recreation or personal pleasure, or is it intended to generate 
a profit? Peter, for example, loves to write. As much as Peter loves to 
write, however, his overriding concern (aside from doing the best job 
of writing that he possibly can) is to make a good living doing it. So in 
Peter's case, making a profit overrides Peter's joy of writing. The IRS 
says that it's okay to enjoy what you're doing for a living, just as long as 
your primary focus is on making a profit doing it. 


So if you're absolutely sure that your home-based business is really a busi- 
ness, take a close look at your business — and at your own personal motiva- 
tions in creating your business — to see what needs to be changed to make it 
more a business and less a hobby. 

Of course, you may decide to keep your activities at the level of a hobby and 
not be bothered with having a business at all. That's fine, but be sure that 
you don't try to write off your hobby expenses as business expenses — and 
don't even think about taking the home-office deduction. If you do that, you'll 
likely be in for a big surprise when you're eventually audited by the IRS (and 
chances are you someday will be). 

Different forms for different forms of businesses 

The forms you need to submit when you file your taxes are different depend- 
ing on what form of business your home-based business takes (and how 
many people you employ). It's easy to get lost in all the many different forms 
and schedules that are available for you to use when calculating and filing 
your taxes (this is another reason you should give serious consideration to 
hiring an accountant or CPA to help out with your company's finances). 

Chapter 10: Getting a Grip on Taxes and Deductions / y( 

Table 10-1 gives you a summary of the kinds of tax you may have to pay and 
the forms you'll need to use to pay them. 

Table 10-1 Taxes to Pay and Forms to File 

Form of Your Business 

Forms to File and Taxes to Pay 

Sole Proprietor 

Income tax 

Form 1040 and Schedule C or C-EZ 

Self-employment tax 

1040 and Schedule SE 

Estimated tax 


Employment taxes 

Form 941 (943 for farm employees) 

Social Security, Medicare taxes, and 

income tax withholding 

Federal unemployment (FUTA) tax 

Form 940 or 940-EZ 

Depositing employment taxes 

Form 8109 


Annual return of income 

Form 1065 

Employment taxes 

Same as sole proprietor 

Partner in a Partnership (Individual) 

Income tax 

Form 1040 and Schedule E 

Self-employment tax 

Form 1040 and Schedule SE 

Estimated tax 

Form 1040-ES 

Corporation or S Corporation 

Income tax 

Form 1120 or 1 120-A (corporation). 
Form 1120S (S corporation) 

Estimated tax 

Form 1120-W (corporation only) and 
Form 8109 

Employment taxes 

Same as sole proprietor 

S Corporation Shareholder 

Income tax 

Form 1040 and Schedule E 

Estimated tax 

Form 1040-ES 

lyO Part II: Managing Your Money 

There is one more form of business you should be aware of that's not listed 
in Table 10-1: the limited liability company (LLC). Limited liability companies 
are created under state law. For tax purposes, LLCs default to general part- 
nerships, and the rules and taxes for partnerships apply. However, you can 
elect to file as a C corporation, S corporation, or a sole proprietor, and once 
again, you will file the appropriate forms that apply. Remember that each 
state has its own rules for limited liability companies — be sure to check out 
your state's unique tax rules before filing your state income taxes. 

When do you hai/e to pay* 

As the IRS loves to remind the self-employed, the federal income tax is a pay- 
as-you-go system — in other words, you should be paying your taxes at 
roughly the same time you're making your income. 

When you're an employee working in a regular job, the process is relatively 
painless. Your employer deducts a fixed amount of money from your pay- 
checks — before you even get them. When you start your own home-based 
business, however, you need to plan to pay estimated taxes — four times a 
year, on April 15, June 15, September 15, and January 15. (Corporate estimated 
taxes are due on the fifteenth day of the fourth, sixth, ninth, and twelfth month 
after the end of the company's fiscal year.) Keep in mind that these are due 
dates, not postmark dates, so plan to send tax payments several days in 
advance. And after you start making your estimated payments — and writing 
the big checks to the federal government that go along with them — you'll 
surely long for the time when your employer took a little out of each paycheck. 

The rules for paying estimated taxes are different for the different forms of 
business. Here's a brief summary: 

*<* Sole proprietors, partners, and S corporation shareholders: If you 

expect to owe taxes of $1,000 or more when you file your income tax 
return, you probably need to make estimated payments to the federal 
government. Use Form 1040-ES — Estimated Tax for Individuals — to 
determine how much to pay and then to submit your payment. 

*«* Corporations: If you expect to owe taxes of $500 or more when you 
file your tax return, you probably need to make estimated payments 
to the federal government. Use Form 1120-W — Estimated Tax for 
Corporations — to determine how much to pay 

Of course, the day of reckoning for most home-based businesses comes 
each year on the same day as it does for individual taxpayers: April 15. 
(Corporations have a slightly different arrangement; corporate federal tax 
returns are due on the fifteenth day of the third month after the close of the 
company's fiscal year, or March 15 for a fiscal year that ends on December 
31.) This is the day that you submit your tax return for the preceding calen- 
dar year and the day that you write out one more check to pay the IRS for tax 

Chapter 10: Getting a Grip on Taxes and Deductions / yy 

shortfalls that weren't already covered in your estimated payments (and the 
day that you celebrate if you have money coming back because you overpaid 
your estimated payments). 

How much do you hai/e to pay) 

This is really the $64 question (or, perhaps, more like the $6,400 or the $64,000 
question, depending on your situation), isn't it? Every business is different, and 
every business has its own unique tax situation. One thing for certain, though, 
is that the kind of business entity your business is has a definite bearing on the 
amount of taxes you pay. 

Is there a corporation in your future? 

Corporations are nothing new in business. 
What's new is that an increasing number of 
home-based businesses are choosing to incor- 
porate as regular C corporations instead of the 
more traditional routes of sole proprietorships 
and subchapter S corporations. Why is that? 
We discussed this trend with James Schneider, 
LL.M., a tax attorney located in San Diego, 
California, who specializes in this topic. 

Home-Based Business For Dummies (HBBFD): 

Is it important to consider taxes when you set 
up your home-based business? 

Schneider: Yes. Taxes have a major impact on 
cash flow because you have to pay your taxes, 
in many cases, in advance. To the extent that 
you can take advantage of tax savings in the 
home, you can improve your cash flow and 
create a more successful business. 

HBBFD: Why haven't more home-based 
businesses set themselves up as regular C 

Schneider: Most people have been told about 
the home-office deduction, and they focus 
on the rules to satisfy that deduction, but the 
home-office deduction doesn't apply to regular 
corporations. In addition, some home-based 
business owners feel a reluctance to set up a 
regular corporation because of the perceived 

complexity in doing so. From my point of view, 
with the help of how-to books, I think incorpo- 
ration is the way to go. It's not that expensive, 
and it's easier to set up than many people may 

HBBFD: But what are the tax implications of 
incorporating your home-based business? 

Schneider: The major issue that I find is self- 
employment tax — which I believe is currently 
as high as 15.6 percent — which doesn't apply 
to a regular corporation but must be paid on all 
income earned by an individual company, a sub- 
chapter S company, or a partnership. Suppose 
you have $50,000 in business income. 
Depending on your deductions, you may end up 
paying $20,000 in self-employment taxes and 
individual income taxes, leaving you with 
$30,000 to live off of. 

HBBFD: How does incorporating your business 
change that? 

Schneider: When you incorporate, your busi- 
ness can provide fringe benefits that are avail- 
able for employees and deductible by the 
business. The person who had $50,000 of tax- 
able income before incorporating may find out 
that his taxable income is only $12,000 after 
incorporating. I'm not suggesting abusing the 
system — this is just the way the system is. 

2(/(/ Part II: Managing Your Money 

If your home-based business is a sole proprietorship, a partnership, or a sub- 
chapter S corporation, your taxable business income will be combined with 
any other source of income and taxed at the individual level on your form 
1040. At the time of this writing, the current individual tax rates range from 
10 percent to 35 percent. C corporation tax rates range from 15 percent to 39 
percent. The tax on the first $75,000 of taxable income is relatively the same 
for both individuals and corporations. Generally speaking, corporate tax will 
far exceed individual tax once income is above the $75,000 mark. 

A corporation is a separate tax-paying entity unless it elects to take advan- 
tage of subchapter S of the tax code. C corporations pay taxes at corporate 
rates. Choosing to use subchapter S enables you to not pay separate (fed- 
eral) taxes (California doesn't recognize S corporations), which means that 
you show the corporation's income on your 1040. However, in doing this, 
some tax deductions available to corporations are lost. Corporations can be 
started as S and changed to a C later or can have their S status revoked. A 
corporation is considered a C corporation unless subchapter S is elected. 

Table 10-2 shows a comparison of the 2004 tax rates for various amounts of 
taxable income for C corporations versus individual taxpayers (which also 
apply to sole proprietorships, partnerships, and subchapter S corporations): 

Table 10-2 

2004 Tax Rates 

Taxable Income 

C Corporation 


$1 to $7,000 

15 percent 

10 percent 

$7,001 to $28,400 

15 percent 

15 percent 

$28,401 to $50,000 

15 percent 

25 percent 

$50,001 to $68,800 

25 percent 

25 percent 

$68,801 to $75,000 

25 percent 

28 percent 

$75,001 to $100,000 

34 percent 

28 percent 

$100,001 to $143,500 

39 percent 

28 percent 

$143,501 to $31 1,950 

39 percent 

33 percent 

$31 1,951 to $335,000 

39 percent 

35 percent 

$335,001 to $10,000,000 

34 percent 

35 percent 

$10,000,001 to $15,000,000 

35 percent 

35 percent 

$15,000,001 to $18,333,333 

38 percent 

35 percent 


35 percent 

35 percent 

Chapter 10: Getting a Grip on Taxes and Deductions £{/ / 


Hiring yourself out 

Q: I am a computer contractor working within a 
niche in a specific software package. There are 
few people in this locale who are qualified to 
work with this application and even fewer with 
experience with this package. So my competi- 
tion is essentially the manufacturer of the soft- 
ware. They know who I am and would like to 
subcontract with me, if not hire me. Due to their 
business practices, however, I would prefer not 
to representthis company, even though I would 
actually make more moneysubbing outtothem. 
My problem is finding potential clients and key 
contacts without their help. Do you have any 

A: You're wise not to become encumbered with 
a company with poor business practices. Life is 

too short and litigation too costly. Can you work 
out something other than a subcontracting rela- 
tionship with this company — for example, a 
referral relationship through which you pay a 
referral fee? You can make clear to your clients 
that your relationship with the company is lim- 
ited to their referring clients to you. 
Alternatively, can you rent the company's mail- 
ing list? From this, you can do mailings (snail or 
e-mail), a newsletter, a Web site, and so on. If a 
publication already exists for these users, can 
you contribute articles, a column, or letters to 
the editor? If the company is a poor one to work 
with, customers will gladly want to know about 
you as an alternative. Just be sure not to bad- 
mouth the company. 

C corporations are not allowed to take a home office deduction because a cor- 
poration cannot have a home, only a business location. Ten percent sharehold- 
ers cannot rent their home to the corporation, either. However, an employee 
and/or shareholder can submit a reimbursement request for use of their home. 
There are many ramifications in choosing the proper business entity and how 
it relates to deductible home offices and reimbursements to the owner. 

When is an independent contractor 
not an independent contractor} 

So let's say that you've started your own home-based business, and you're 
starting to deliver services — say, interior design — to a client. Chances are 
you consider yourself to be a business separate from your client's business - 
an independent contractor. But what if we told you that there's a possibility 
that the IRS might not agree with your particular view of your business and 
that the IRS might instead decide that you're performing your services as an 

£{/£ Part II: Managing Your Money 


"Okay, that's interesting," you might say to yourself, "but what's the big deal?" 
The big deal is, if you think you're a home-based business — and take advan- 
tage of all the deductions for business expenses that you're entitled to — you 
may be in for an unpleasant surprise if the IRS decides that you're really an 
employee. This unpleasant surprise includes disallowing all the deductions 
you've been taking for your home-based business and recalculating your taxes 
without them — possibly resulting in a substantial amount of money (plus 
penalties and interest) now owed to the IRS. Believe us, this is one surprise 
most of us could do without. The good news is that there are steps you can 
take right now to ensure that this does not happen to you. 

In its ongoing quest to be helpful, the IRS has developed guidelines to help you 
determine whether you're an independent contractor or really an employee. 
These guidelines are categorized by how much behavioral and financial control 
a business has over the person doing the work and the exact nature of the rela- 
tionship. Here are the IRS's independent-contractor guidelines, presented as 
they currently appear in Publication 15-A: Employer's Supplemental Tax Guide 
(revised January 2004): 

u* Behavioral control. Facts that show whether the business has a right to 
direct and control how the worker does the task for which the worker is 
hired include the type and degree of: 

• Instructions the business gives the worker: An employee is gener- 
ally subject to the business's instructions about when, where, and 
how to work. All of the following are examples of types of instruc- 
tions about how to do work: 

• When and where to do the work 

• What tools or equipment to use 

• What workers to hire or to assist with the work 

• Where to purchase supplies and services 

• What work must be performed by a specified individual 

• What order or sequence to follow 

The amount of instruction needed varies among different jobs. 
Even if no instructions are given, sufficient behavioral control may 
exist if the employer has the right to control how the work results 
are achieved. A business may lack the knowledge to instruct some 
highly specialized professionals; in other cases, the task may 
require little or no instruction. The key consideration is whether 
the business has retained the right to control the details of a 
worker's performance or instead has given up that right. 

Chapter 10: Getting a Grip on Taxes and Deductions 20 J 

• Training that the business gives the worker: An employee may be 
trained to perform services in a particular manner. Independent 
contractors ordinarily use their own methods. 

is* Financial control: Facts that show whether the business has a right to 
control the business aspects of the worker's job include: 

• The extent to which the worker has unreimbursed business 
expenses. Independent contractors are more likely to have unreim- 
bursed expenses than are employees. Fixed, ongoing costs that are 
incurred regardless of whether work is currently being performed 
are especially important. However, employees may also incur unre- 
imbursed expenses in connection with the services that they per- 
form for their business. 

• The extent of the worker's investment: An independent contractor 
often has a significant investment in the facilities he or she uses in 
performing services for someone else. However, a significant invest- 
ment is not necessary for independent-contractor status. 

• The extent to which the worker makes his or her services avail- 
able to the relevant market: An independent contractor is generally 
free to seek out business opportunities. Independent contractors 
often advertise, maintain a visible business location, and are avail- 
able to work in the relevant market. 

• How the business pays the worker: An employee is generally guar- 
anteed a regular wage amount for an hourly, weekly, or other period 
of time. This usually indicates that a worker is an employee, even 
when the wage or salary is supplemented by a commission. An inde- 
pendent contractor is usually paid a flat fee for the job. However, it 
is common in some professions, such as law, to pay independent 
contractors hourly. 

• The extent to which the worker can realize a profit or incur a 
loss: An independent contractor can make a profit or loss. 

v* Type of relationship: Facts that show the parties' type of relationship 

• Written contracts describing the relationship the parties intend 
to create. 

• Whether or not the business provides the worker with employee- 
type benefits, such as insurance, a pension plan, vacation pay, or 
sick pay. 

• The permanence of the relationship: If you engage a worker with 
the expectation that the relationship will continue indefinitely, 
rather than for a specific project or period, this is generally consid- 
ered evidence that your intent was to create an employer-employee 

20&4 ' >art " : Managing Your Money 

• The extent to which services performed by the worker are a key 
aspect of the regular business of the company: If a worker provides 
services that are a key aspect of your regular business activity, it is 
more likely that you will have the right to direct and control his or 
her activities. For example, if a law firm hires an attorney, it is likely 
that it will present the attorney's work as its own and would have 
the right to control or direct that work. This would indicate an 
employer-employee relationship. 

The lines that separate independent contractors from employees can be 
blurry. Here are a couple of examples that the IRS itself uses to illustrate the 
problem. Review the following examples, and see who you think is an employee 
and who is an independent contractor: 

*<* Steve Smith, a computer programmer, is laid off when Megabyte, Inc. 
downsizes. Megabyte agrees to pay Steve a flat amount to complete a 
one-time project to create a certain product. It is not clear how long it 
will take to complete the project, and Steve is not guaranteed any mini- 
mum payment for the hours spent on the program. Megabyte provides 
Steve with no instructions beyond the specifications for the product 
itself. Steve and Megabyte have a written contract, which provides that 
Steve is considered to be an independent contractor, is required to pay 
federal and state taxes, and receives no benefits from Megabyte. 
Megabyte will file a Form 1099-MISC. Steve does the work on a new high- 
end computer that cost him $7,000. Steve works at home and is not 
expected or allowed to attend meetings of the software development 
group. Employee or independent contractor? 

**" Jerry Jones has an agreement with Wilma White to supervise the remod- 
eling of her house. She did not advance funds to help him carry on the 
work. She makes direct payments to the suppliers for all necessary mate- 
rials. She carries liability and workers' compensation insurance covering 
Jerry and others that he engaged to assist him. She pays them an hourly 
rate and exercises almost constant supervision over the work. Jerry is 
not free to transfer his assistants to other jobs. He may not work on other 
jobs while working for Wilma. He assumes no responsibility to complete 
the work and will incur no contractual liability if he fails to do so. He and 
his assistants perform personal services for hourly wages. Employee or 
independent contractor? 

What did you guess? According to the IRS, Steve Smith is an independent con- 
tractor, and Jerry Jones and his assistants are employees. 

Be constantly aware of how you do business, and guard against conducting 
business in a way that would cause the IRS to believe that you're actually an 
employee instead of an independent contractor. The differences are often 
subtle, and the line between them is easy to cross. With a bit of forethought 
and planning, however, you can always make sure that you're on the right 
side of that line. 

Chapter 10: Getting a Grip on Taxes and Deductions 2(/3 

Taking a Look at the Home-Office 

For many home-based businesspeople, taking the home-office deduction is a 
major financial incentive to start businesses in their home, and it can have a 
significant and positive effect on a home-based business's financial position 
(as well as the personal financial situation of the owner). For many home- 
based business owners, the ability to take the home-office deduction literally 
means the difference between success and failure. 

The beauty of the home-office deduction is that it allows you to deduct the 
costs of operating and maintaining the part of your home that you use for 
business. And it doesn't matter what kind of home you live in. Whether you 
live in a single-family home, a condominium, a commercial building, or even a 
houseboat, if you meet the IRS's criteria for the home-office deduction, you're 
eligible to take it. 


To qualify to claim expenses for the business use of your home, you must 
meet the following tests: 

*«* Your use of the business part of your home must be: 

• Exclusive: A specific area of your home must be used only for your 
business. (Note: there are two exceptions to this exclusive use test: 
(1) You use part of your home for the storage of inventory or prod- 
uct samples or (2) You use part of your home as a day-care facility.) 

• Regular: The business part of your home must be used for busi- 
ness on a continuing, not just an occasional or incidental basis. 

• For your trade or business. 
u* The business part of your home must be one of the following: 

• Your principal place of business. 

• A place where you meet or deal with patients, clients, or cus- 
tomers in the normal course of your trade or business. 

• A separate structure (not attached to your home) that you use in 
connection with your trade or business. 

So assuming you meet these criteria, you can take the home-office deduction. 
The benefits of doing so are immediate and extensive. Not only are you allowed 
to deduct your normal business expenses (paper, pencils, phone calls, and so 
on), but you're also able to deduct a portion of the indirect expenses related to 
your entire home! Here are some of the most common indirect expenses that 
may be at least partially deductible under the IRS's home-office rules: 


Part II: Managing Your Money 


i^ Rent 

p* Mortgage 

V Security system 

v* Housekeeping 

v* Household supplies 

*<* Condominium association fees 

*<* Trash collection 

v* Utilities (gas, electric, and so on) 

To determine the total amount of indirect expenses that you can deduct 
under the home-office deduction, you first have to calculate the percentage 
of your home devoted to your home office. So, for example, suppose you 
have a 240-square-foot spare bedroom (12x20 feet) that you've set aside as a 
home office and that the total square footage of your home is 1,200 square 
feet. Here's how to determine the portion that will determine the amount of 
your home-office deduction: 

240 sq. ft. office * 1,200 sq. ft. home = Percent of expenses deductible 

240 ^ 1,200 = 20 percent 

You will, therefore, be able to deduct 20 percent of your home's indirect 
expenses — an amount that, depending on your situation, could be quite 
substantial. Keep in mind, though, that the tax rules don't allow you to 
deduct an amount greater than the amount of gross income that you've 
earned in your home-based business. The government doesn't mind if you 
make money from individuals and other companies, but it does not want you 
to make money off the IRS. 

Be aware that if you take the home-office deduction, you will be required to 
depreciate the home office business square footage of your home. When you 
sell your home, you will need to reduce your cost basis by the amount of 
depreciation deducted. When you sell your home that you lived in for more 
than two years, you can exclude $250,000 (or $500,000 on a joint return) of 
your gain. The gain would be a capital gain eligible for reduced preferential 
rates, which will be taxed at a maximum rate of 15 percent. However, as a 
home-office deductor, you will have to do one more calculation: You will have 
to subtract from the capital gain the amount of depreciation taken and pay 
tax at a maximum rate of 25 percent. This calculation is known as deprecia- 
tion recapture. 

It is widely believed that taking the home-office deduction waves a red flag 
that can gain you extra scrutiny by the IRS — and perhaps an audit. While we 

Chapter 10: Getting a Grip on Taxes and Deductions £{/ / 

don't know if this is really true, we do know that you should consult with an 
accountant, tax planner, or other tax professional before you first take the 
home-office deduction. The rules are complicated, and the penalties for doing 
the wrong thing can be significant. For more information on the allowability 
of deductions for your home-based business, check out IRS Publication 587: 
Business Use of Your Home. 

Retfievdinq Other Important 
Tax Deductions 

Aside from the important home-office deduction, home-based businesses are 
allowed to deduct a wide variety of other business expenses from their taxes. 
To be deductible, the Internal Revenue Code specifies that expenses must be 
ordinary and necessary for the operation of your business. So although the pur- 
chase of a vintage 1959 sunburst Gibson Les Paul electric guitar for $150,000 
may be ordinary and necessary (and thus an allowable deduction) for a profes- 
sional musician, it likely wouldn't fly for a home-based software designer — in 
fact, it would surely sink like a lead balloon. 

As you may imagine, a home-based business owner can legally deduct lots of 
different things from his or her taxes. Here are examples of legal deductions: 

v* Rent 

**" Phones 

W Utilities 

v* Postage 

u^ Health insurance 

v Auto expenses 

V Internet access 

i* Business travel 

U* Business meals and entertainment 

v* Professional services and consultants 

v* Business cards and stationery 

u* Retirement plans 

v* Interest payments on business credit cards 

2(/0 Part II: Managing Your Money 


*<* Education 

*<* Office supplies 

**" Office furniture 

And as you may also imagine, the federal government has determined that 
plenty of things aren't deductible. Too bad! Here are a number of deductions 
that may not be considered legal by the IRS: 

v* Anticipated liabilities 

*«* Bribes and kickbacks 

*«* Demolition expenses 

t^* Personal expenses 

«-<* Social or recreational clubs 

V Lobbying expenses 

i* Political contributions 

u* Federal income taxes 

*<* Penalties and fines as a result of breaking the law 

When in doubt, check it out. Consult with an accountant or tax advisor to see 
^ which expenses you're allowed to deduct and which ones you aren't. It's far 
better to be sure about your allowable deductions before you take them 
instead of years later, when your business expenses are disallowed by the IRS. 

Discovering Sometimes-OVeriooked 
Ways to Sai/e On \lour Taxes 


As you're probably well aware, the rules that govern income taxes and the 
deductions you're allowed to take are complex. But despite appearances to 
the contrary, you're not required to pay any more tax than is necessary. In 
fact, you shouldn't pay any more tax than you're legally required to pay. 
Because of the complexity of the tax rules and the fact that they change — 
sometimes substantially — every year, hiring a professional tax lawyer or 
accountant can really pay off, and it's deductible, too. 

However, we understand if you'd prefer not to spend a lot of money paying 
for a tax lawyer or accountant just yet. If that is the case for you, you can still 

Chapter 10: Getting a Grip on Taxes and Deductions 2vy 


employ a variety of strategies to reduce your tax burden. Consider the follow- 
ing list of sometimes-overlooked ways to save on your taxes: 

*<* Maximize your vehicle deduction. You can choose between the stan- 
dard mileage deduction (40.5 cents per mile in 2005) or the actual costs 
of operating your vehicle, which includes fuel, maintenance, taxes, and 
license fees. Runzheimer International (www. runzheimer. com), which 
analyzes the cost of owning and operating a vehicle in cities across the 
United States, found it costs over $11,000 to operate a mid-size vehicle in 
Detroit in 2004 but only $7,485 in Portland, Oregon. So taking the stan- 
dard deduction may make more sense in Detroit, Los Angeles, and other 
higher-cost places than in does in Portland and other lower-cost places. 
Note, however, that if you use the actual cost method in the first year 
you use a vehicle, you must stick with this method ever after. Where you 
live can determine whether choosing to use the standard deduction will 
save you more money than reporting actual costs. Unless you use a vehi- 
cle 100 percent for business, you will need to keep a log of your business 
use, including dates, mileage and the purpose of your business travel. 

*<* Make the most of hiring employees. If you need an employee, consider 
hiring a family member. Your spouse or child in a lower tax bracket 
enables you to keep income in the family. Depending on how much the 
family member earns, no tax at all may be owed on his or her earnings. 
Sometimes tax credits are available for hiring designated workers, such 
as Native Americans, or if you live in an economic empowerment zone. 

U* Reduce your taxes with a retirement plan. Putting money into a retire- 
ment fund reduces your Adjusted Gross Income, which is what you use 
to calculate your self-employment tax and make calculations for other 
deductions, such as a casualty loss. The self-employed are able to invest 
more money using a Keogh, SEP, or SIMPLE plan than with an IRA. To 
learn more about retirement plans for the self-employed, obtain IRS 
Publication 560 (www . i rs . gov/pub/i rs -pdf /p560 . pdf). 

*-" Make the most of a bad year. Because it's possible to carry business 
losses both back as well as forward, consult a tax professional to deter- 
mine if you can get an immediate tax refund or would be better off carry- 
ing your loss into your next business year. Keep in mind that the tax law 
on handling losses changes frequently. 

Of course, it's against the law to evade paying your taxes, but it's your duty 
to avoid paying more taxes than you're legally obligated to. The IRS is not 
going to give you any gold stars or special privileges for paying more taxes 
than you have to — you're throwing away your money if you do. And that's 
the last thing any home-based businessperson should ever do. 

2 1 (/ P ar t II: Managing Your Money 

Tax software to the rescue 

When home-based businesspeople prepare forms the old-fashioned way. Here are a couple 

their taxes, they have two key options: pay of reliable tax software packages to consider: 

someone to do them or do the taxes themselves. 

If you decide to do your own taxes, you may find 

that tax software makes the process much *<" TurboTax: 

easier and far more accurate than filling out 

v* TaxCut: www.taxcut . com 

Uncotferinq the Ins and Outs of Sates Tax 

According to the people who keep track of these things, there are more than 
10,000 different sales tax rates nationwide, and these rates are in a constant 
state of change as voters approve rate changes to fund needed local improve- 
ments or vote to scale down their sales tax bite. But although sales taxes are 
in a constant state of change, one thing is sure: If you sell products or pro- 
vide certain kinds of services to people within your state (the exact services 
taxed differ from state to state — check with your local tax authorities to find 
out whether or not the services you offer are subject to sales tax), you had 
better be sure to collect sales tax while you're at it. 

As of this writing, only five states — Alaska, Delaware, Montana, New 
Hampshire, and Oregon — don't have sales tax. All other states do have sales 
tax, and they do expect you to collect each and every dollar and cent owed 
and then submit them to the appropriate tax authorities regularly. 

Here's how the sales tax setup and collection process generally works: 

1. File an application with your state sales tax authority to obtain a 
reseller's permit, also known as a certificate of authority, sales tax 
permit, resale permit, or sales tax number, depending on the state in 
which you reside. 

2. File appropriate sales tax forms with your state or local tax authori- 
ties, with estimated collections for quarter or year (or whatever 
period of time requested). 

3. Receive instructions from state or local tax authorities with informa- 
tion on how often to submit tax collections and where to send them. 

4. Submit taxes at the time and place directed by the state or local tax 

Chapter 10: Getting a Grip on Taxes and Deductions 211 

Although the collection of sales taxes is a fairly routine and straightforward 
process (perhaps even boring), one thing that has brought a lot of excitement 
to the topic is the ongoing debate over collecting sales taxes for products 
sold over the Internet. Congress has temporarily exempted Internet sales 
from the payment of sales taxes, much to the delight of e-commerce firms 
such as and others, but much to the consternation of the states 
that cannot collect the sales tax revenue that is increasingly being lost to 
online sales. Although online companies still have to collect sales taxes for 
sales made within their home states, just as mail-order companies do, they 
don't have to collect sales taxes for sales made to people or companies out- 
side their states. 

Stay tuned to the debate in Congress over sales taxes for sales through the 
Internet — it promises to be a long (and loud!) one. 

Jml£ P ar t " : Managing Your Money 

Part III 

Avoiding Problems 

The 5 th Wave 

By Rich Tennant 

1% I have tead ijour tfesume/Ms. Cotaan. Ubw 
pteaee, come... sit... speak..." 

In this part . . . 

7 here is far more to starting a business than just hang- 
ing an Open sign on your door. You've got to create a 
foundation that will last for years. In this part, we review 
the most common legal do's and don'ts and explore how 
to leverage outside resources to your advantage. Finally, 
we take an in-depth look at home-based business ripoffs 
and scams. 

Chapter 11 

Legal Do's and Don'ts 

In This Chapter 

Choosing a form (legal structure) for your business 
Selecting and registering your business's name 
Dealing with trademarks, copyrights, and patents 
Complying with zoning requirements, licensing, and permits 
Considering your tax situation 


■ f you think you have enough laws, statutes, and regulations to worry about 

«S now, just wait until you start your own business — you haven't seen any- 
thing yet! Actually, it's not quite that bad, but depending on what kind of home- 
based business you plan to start, you may be surprised at just how many city 
and local agencies and departments will play some role in your life, and how 
many rules and regulations you'll need to comply with. And it's not only the 
government you've got to take into account. Your own neighborhood or devel- 
opment may have restrictive covenants (that you agreed to honor when you 
bought your house, whether or not you noticed them in the fine print of your 
purchase agreement) that determine whether you can run a business out of 
your home. And you're wise to pay attention: The consequences of not doing 
the right things include fines, penalties, and even closure. 

Laws and regulations determine where you can locate your home-based busi- 
ness and during what hours it can operate. Laws and regulations require you 
to get permits if your business prepares and sells food or if you have an 
alarm to protect your premises. And if you're a private investigator, hair- 
dresser, masseuse, building contractor, plumber, or any of hundreds more 
occupations, you need a license (and you need to pay a licensing fee) before 
you can operate your business. The government, to some degree, determines 
which kind of business form (sole proprietorship, partnership, limited liability 
company, or corporation) that you're eligible to use and also decides the 
financial and tax implications on your business as a result of your decision. 


Part III: Avoiding Problems 

In this chapter, we discuss a wide variety of legal issues that every home- 
based business owner faces, including the various forms of business avail- 
able for you to choose among. We also tell you how to select and register a 
company name and consider the potential impact of zoning, licensing, and 
permits on your business. We take a look at trademarks, copyrights, and 
patents. Finally, we briefly visit the potential impact of tax considerations 
on your home-based business (see Chapter 10 for the lowdown on taxes). 

Our aim isn't to turn you into a lawyer or an accountant (not that we've got 
anything against lawyers or accountants) but to arm you with enough knowl- 
edge to take care of the basics and to know where to turn when you need 
more information. 

Understanding the Farms (Legal 
Structures) of Businesses 

One of the first decisions you make after you decide to start your own home- 
based business is what form — that is, what legal structure — of business it 
will take. 

You may have noticed a few interesting words or initials after the names of 
some of your favorite companies. Global fast-food giant McDonald's, for 
example, isn't simply named McDonald's — it's McDonald's Corporation — 
which means that McDonald's has decided to organize as a corporation form 
of business. LucasArts Entertainment Company LLC — producer of, among 
other things, the popular Star Wars and Indiana Jones computer games — is 
organized as a limited liability company. 



Each of the different forms of business (and their accompanying alphabet 
soup of letters) comes with a wide variety of legal implications for many 
facets of your business, including legal liability in case of lawsuit, taxes, and 
more. It is important, therefore, that you take time to understand all of these 
implications up front — as you make and implement your business plans. 

Which form of business is right for you? This section gives you some basic 
guidelines to consider as you weigh the options available to you; they are 
certainly sufficient to help you get your business off the ground and help you 
become an informed home-business owner. Our advice, however, is to con- 
tact an attorney or accountant to discern the specific advantages and legal 
requirements of each form of business and to decide which is best for you. 
The money you save over the years will probably pay for this advice many 
times over. 

Chapter 11: Legal Do's and Don'ts 2 7 7 

Some things to consider when you decide what form of business to use 
include the following: 

V The impact on your business's image 

v* The impact of planned business growth 

v The cost to start up your business 

*<* The cost to maintain your business 

u Your tax goals 

i* The impact of government regulation 

i* Your financing needs 

*<* The amount of personal risk you're willing to take for your business 

In each of the sections that follow, we consider the four major forms of busi- 
ness listed in the introduction to this chapter, discussing the pros and the 
cons for home-based businesses. As you review each, think about the kind of 
business you want to run — not just today, but also years into the future. We 
know it may be difficult to picture what your business will be like a couple 
weeks into the future, much less a couple of months or a couple of years. The 
good news is that you can change the form of your business most any time 
you like with a minimum of muss or fuss (corporations are the exception 
here, because they require the filing of special forms with your state govern- 
ment). But give it a try anyway; settling now on a form that will carry your 
business for many years into the future may be easier in the long run. 

Sole proprietorship 

By far the vast majority of home-based businesses are sole proprietorships, 
which means that you are the one and only owner of the business. You are the 
boss, the leader, the one to congratulate when the business does well and the 
one to blame when the business goes bad. In a sole proprietorship, the income 
you derive from your business is reported on your Form 1040 along with any 
other personal income that you make during the course of the year — you 
don't need to file a separate tax return for your business. Similarly, any debts 
you incur as a sole proprietor are the same as your personal debts. 

Why are so many home-based businesses sole proprietorships? Perhaps one 
reason is that if you do nothing at all to formally organize your business, it 
will by default be considered a sole proprietorship. In other words, by doing 
nothing, you're automatically making a decision to become a sole proprietor- 

2 1 P art '" : Avoiding Problems 

ship. Another reason may be because it's more difficult to create a partner- 
ship or corporation, which require creating partnership agreements or filing 
incorporation forms with the government. 

Fortunately, this isn't a bad form for many home-based businesses to take. A 
sole proprietorship is the simplest and least regulated form of organization. 
Startup costs are minimal or nil, and one person owns the business and 
wields full control over it. He or she is also responsible for securing financing, 
and he or she receives all company profits. Business income under the sole- 
proprietorship form of business is taxed as personal income, which works 
out just fine for most home-business owners. On the minus side of the 
column, a sole proprietorship offers major disadvantages in the areas of legal 
liability for the owner (who can be personally sued for business-related 
issues) and potential dissolution of the business upon the owner's death. 
Table 11-1 summarizes the good and bad news of a sole proprietorship. 

Table 11-1 

Sole Proprietorship 

The Good News 

The Bad News 

Owner has complete control 
over all aspects. 

Sole proprietorships are considered 
less prestigious than some other forms 
of business. 


It can be particularly difficult to create 
and maintain secure outside financing. 

Easy to start and to close. 

The business dies when the owner does. 

Owner gets to keep all profits. 

Owner is personally liable in the event of 
a lawsuit (as a result of malpractice, 
product failure, and so on). 


If you have two or more owners of your home-based business — perhaps you 
and a close friend or relative — consider choosing the partnership form of 
business. In a partnership, each partner commits to providing specific skills, 
expertise, and effort — and to share the partnership's expenses — in return 
for an agreed-upon portion of the company's profits. The agreement spelling 
out these terms is called (not surprisingly) a partnership agreement. 

Partnerships take advantage of the different skills, expertise, and resources — 
including cash — that the different partners bring to an organization. On the 
plus side, partnerships are fairly easy to put together and administer; all you 

Chapter 11: Legal Do's and Don'ts 2 / y 

really need is a simple agreement (a verbal agreement works, although written 
partnership agreements are much, much better), which you can make more 
complicated if the stakes are high. Be sure, however, to have a lawyer take a 
look at your partnership agreement before you sign it. Because partners have a 
legally recognized ownership stake in the business, each is an agent for the 
partnership and can hire employees, borrow money, and operate the business. 


Profits are taxed as personal income, but on the minus side of the ledger, 
partners are personally liable for debts and taxes. Not only that, but also, 
personal assets can be confiscated if the partnership can't satisfy creditors' 
claims. If you've got a nice home or a car or two, keep that in mind before 
you enter into a partnership. Table 11-2 shows the advantages and disadvan- 
tages in detail. 

In the event that partners want to avoid personal liability, they can form a 
special legal arrangement available called a limited partnership. Limited part- 
nerships must be registered and must also pay a franchise fee charged by the 
state to file a certificate of limited partnership. Don't forget: While it's legally 
possible to create a partnership with only a handshake and sometimes less, 
in the event of disagreement or when it comes time to dissolve the partner- 
ship, you will wish you had a written agreement. Consider having a lawyer 
either draft or review your partnership agreement. Remember: The money 
you pay now for a lawyer's help will save you many headaches and, poten- 
tially, big stacks of cash down the road. 

Table 11-2 


The Good News 

The Bad News 

Get the skills, expertise, and efforts 
of two or more people. 

Partners don't always agree on every 
course of action, a situation that may 
eventually become acrimonious and 
could harm the business. 

Business risks are diffused across 
one or more partners. 

Each partner is legally liable for actions 
of the other partners, including hiring 
employees, borrowing money, operating 
the business, and more. 

Partners support one another and 
provide stimulating social environment. 

Just as in marriage, partners almost 
always have disagreements and 

Government exerts little direct 
control over partnerships. 

Like divorces, when partnerships break 
up, things can quickly get messy. 

Expenses are shared by all partners. 

Profits are distributed to all partners. 

22v P art '" : Avoiding Problems 

Limited liability company 

The limited liability company (LLC) is a fairly recent innovation, providing 
flexibility in management the way a general partnership does while offering 
the limited liability of a corporation. On one hand, LLCs are treated as part- 
nerships for U.S. income tax purposes, but they are also granted the protec- 
tion from personal liability that corporations enjoy. Limited liability 
companies are now legally recognized in all 50 states, in the District of 
Columbia, and in many foreign countries. 

For many, the LLC form of business may be the preferred choice for certain 
new operations and joint ventures. Owners of LLCs are known as members — 
comparable to stockholders in a corporation or limited partners in a limited 
partnership. If you decide to create an LLC, you need to file articles of organi- 
zation with your secretary of state. Each LLC member must also execute an 
operating agreement that defines the relationship between the company and 
its members. Check your state's procedures to find out the requirements that 
apply to you. 

The pluses and minuses of LLCs are similar to those of partnerships, with the 
exception of the limitation of liability that corporations enjoy. Table 11-3 
gives you some other pluses and minuses. 

Table 11-3 Limited Liability Company 

The Good News The Bad News 

Limited liability for company's Many states require thatthe business 

principals (owners). include more than one person. 

Treated as partnerships forfederal Dissolve on the death of an owner, 
taxes, though some states, including 
California, treat them as corporations. 

Cost less to form and maintain than Cost more to set up and maintain than 

do corporations and require less do sole proprietorships, 


Without a doubt, corporations are the most complex form of business. 
Corporations are unique because they are legal entities that exist separately 
from their owners. This is exactly why corporations limit the personal liability 
of their owners. While limiting the owners from personal liability, however, a 

Chapter 11: Legal Do's and Don'ts 227 

double taxation on earnings (corporate tax and personal tax) may result, put- 
ting corporations at a tax disadvantage in certain circumstances. Corporations 
are identified by having the words Incorporated (Inc.) or Corporation (Corp.) in 
or after their names. 

On the positive side, the corporation form may be advantageous for financing 
your company, because it allows capital to be raised easily through the sale 
of corporate stocks or bonds. And because a corporation exists apart from 
its owners, it can function even without key individuals. The corporation 
form of business also enables employees to participate in various types of 
insurance and profit-sharing plans that may not be available to sole propri- 
etorships, partnerships, or LLCs. On the minus side, corporations can be 
expensive to start and maintain, and the requisite paperwork may be a night- 
mare for people who dislike red tape. Costs and procedures for incorporating 
vary from state to state. Contact your secretary of state for more information 
(you may find this on your state's Web site). Table 11-4 shares more of the 
ups and downs of corporations. 

A special type of corporation — an 5 corporation — allows owners to over- 
come the double tax problem of regular corporations (called C corporations) 
by allowing shareholders to offset business losses with personal income. And 
as if the government (in this case, state government) didn't already charge 
enough to incorporate, S corporations are subject to an additional annual 
surcharge from the federal government. Everyone, it seems, wants a piece of 
the action. 

Table 11-4 


The Good News 

The Bad News 

Best overall business image. 

Expensive to start and operate. 

Personal liability of owners and 
stockholders is limited. 

Mountains of paperwork. 

Can (and generally do) survive 
their owners. 

Tax benefits may be little or nil com- 
pared with the other forms of business. 

Easier to sell, though majority of 
voting stockholders required to do so. 

All those mountains of paperwork 
required to form a corporation require 
quite a bit of effort to make changes to. 

Can sell stock and bonds, making 
raising capital easier than with 
other forms of business. 

Corporations are double taxed in some 
states, and insurance may be more 
expensive than for other forms of 

222 P art "' : Avoiding Problems 

Despite all the options available to home-based businesses, most start out as 
either a sole proprietorship or a partnership. This is the simplest thing to do, 
and forming a sole proprietorship or partnership costs little or no money. 
Eventually, though, many home-based businesses consider the other avail- 
able forms of business, because each offers unique advantages and disadvan- 
tages to home-based businesses — especially when it comes to liability and 
taxes (and because it's actually kind of cool to have some of those extra let- 
ters trailing after your business name). 

Name Registration 


Choosing the name of your company is one of the most critical decisions you 
make as you set up your business. We're not exaggerating when we say that the 
right name can help pave the way to sales and success, and the wrong name 
can lead to all kinds of problems for you and your business — success not 
being one of them. According to business naming consultant Naseem Javed, 
quoted in a recent article in the San Diego Union Tribune, "If you don't have a 
good name, you'll be throwing away advertising money and profit potential." 

Here's an interesting bit of information: An average of 4,000 to 5,000 commer- 
cial messages are aimed at each person each and every day. Think about it 
for a minute: television and radio ads, newspapers, magazines, ads on the 
sides of buses, company names on sports stadiums, junk mail, junk faxes, 
junk email . . . the list goes on and on. How will your home-based business cut 
through all that noise and capture the interest and attention of your prospec- 
tive customers? A good name can make all the difference. 

The best business names 

v* Describe the service or product that the business offers 
t-" Are protectable by trademark or service mark 
i* Are novel 


Naming your business is not something to do with friends over a few beers 
while you're grilling burgers in the backyard — it requires careful thought 
and planning. Your business name should give people some idea of the exact 
nature of your business (The Pink Poodle would be much better for a pet 
grooming business than for a tree-trimming business), and it should also pro- 
ject the image you want your business to have. Names can be simple, sophis- 
ticated, or even silly (not too silly, though). 

Chapter 11: Legal Do's and Don'ts 223 


Think several years out into the future; try to pick a name that will grow with 
your business over time instead of limiting it. The Pleasant Hawaiian Holidays 
travel agency, for example, had to change its name to Pleasant Holidays when 
its trip offerings expanded beyond the Hawaiian Islands. 

Here are some tips on selecting a name: 

v* Your own name — if you have a reputation or plan to grow one. Peter's 
home-based business, for example, is titled Peter Economy Incorporated. 

u* Your name with a tag line or motto (for example, Sara's Place: Where 
Cookies Are Number 1). 

*"* A super-catchy Web site name (, no-homework .com). 

v* A name that communicates a primary benefit (No Mess Chimney Sweep). 

i* A name that describes your specialty (Fantastic Fabric Creations). 

V A made-up name that suggests what you do or how you do it (Springfield 
Hand-Built Log Homes). 

Of course, just as you can find general guidelines about what kinds of names 
you should go with, think about the kinds of names you should avoid. Here, 
according to naming consultant Naseem Javed, are some to avoid: 

u* Overused (says Javed, "There are 53,573 U.S. businesses or products 
with the name King in them and 5,730 with Mr") 

i^ Politically incorrect (Aunt Jemima) 

V Sound-alike (General, International, Dynamic, U.S.) 

W Neutral (Gold Seal, Lucky, Micro, Data) 

t-" Confusing (Ben Gay) 

Along with a name, many businesses develop a logo — the graphic symbol of 
the business. As they say, a picture is worth a thousand words. As with your 
name, your logo should be carefully designed to project the exact image you 
want for your business. See Chapter 14 for more on creating a logo. 

After you have decided on a name, the next step is to make sure it is not 
already in use by another company. If the name you use is trademarked or 
otherwise legally protected by another business, not only can you be sued to 
stop using the name, but also, thousands of dollars of advertising and promo- 
tion may go right down the drain along with your name. 

22if P art l" : Avoiding Problems 

You can look up business names in a variety of different places. For starters, 
try your local telephone book (understand, however, that many home-based 
businesses don't list business phone numbers) and government offices, or do 
a search on Google. After you go through those sources, try trade directories, 
the Federal Trademark Register, and listings of corporate business names 
from your secretary of state. If that all sounds kind of like a pain in the neck 
(and it does to us), hire someone to do a search for you. When you have 
finally settled on a name, it may be worth your time and money to obtain a 
trademark from the U.S. Patent and Trademark Office to protect your busi- 
ness name and logo. If you don't, someone else may well take them away 
from you — along with all the customer goodwill that took you years to build. 

Here are a few places to check whether your proposed business name is 
already in use: 

w* Local phone books (call information for the most recent listings) 

v Local courthouse, county recorder, and the office in your state responsi- 
ble for registering business names 

*«* Internet Yellow Pages such as www. switchboard . com and www. i nfo 
space .com, and search engines such as www., alltheweb. 
com, msn .com, and yahoo. com 

v* Trademark search using a database, such as the U.S. Patent and 
Trademark Office (www. uspto .gov) or NameProtect (www. name 
protect . com), o, better yet, an attorney specializing in trademarks 
and patents 

If the name you have chosen is not your name, you will be required to file a 
fictitious-business-name statement (also called a doing business as . . ., DBA, 
or d/b/a). This is also necessary if the business name implies greater owner- 
ship with such words as And Company, or Associates, or & Son/Daughter. 

The actual registration process is pretty much the same throughout the 
United States. Although regulations vary from state to state (check with your 
local authorities to be sure to get the exact information for where you plan to 
do business), fictitious-business-name statements are generally filed with the 
county clerk and may also have to be published in a newspaper of general 
circulation once a week for four successive weeks in the county where the 
principal place of business is located. Because the cost of publishing legal 
notices, such as fictitious-business-name statements, varies widely from 
newspaper to newspaper, it pays to shop around. 

After your legal notice has been published for the required period of time, an 
affidavit of publication must be filed with the county clerk or requisite local 
or state agency within 30 days after publication. Again, check the require- 
ments in your locale to be sure that you have a complete understanding of 
the filing requirements and that you dot all the i's and cross all the t's. 

Chapter 11: Legal Do's and Don'ts Z^5 

Trademarks, Copyrights, and Patents 

When you think of the word asset, the first thing that comes to your mind 
may be cash, a computer, a company car, or perhaps the equipment you use 
to make the items you sell to customers. However, one of the most important 
assets for many businesses today is not any of those things — it's a com- 
pany's intellectual property, the unique ideas and knowledge that give it a 
competitive advantage in the marketplace. 

Intellectual property can range from a unique product design or the ingredi- 
ents in your award-winning chili recipe to your company's name, a song or 
photograph, or the exact words that you wrote in a newspaper or magazine 
article. The value of your intellectual property depends on the nature of the 
ideas and their demand in the marketplace. But one thing is for sure: The 
value of your intellectual property is in jeopardy if you don't take steps to pro- 
tect it from theft. That's where trademarks, copyrights, and patents come in. 


A trademark (™) is a distinctive word, name, symbol, or device — or combi- 
nation of any of these — used to distinguish a product or service from those 
of competitors. A service mark ( SM ) is simply a trademark for services. The 
word, name, symbol, or device you select to trademark must be sufficiently 
unique to separate your products from their generic source. You can't, for 
example, trademark the generic word cola, but you can trademark a trade 
name for your unique brand of cola known as Coca-Cola (or, that is, you could 
have if someone hadn't beaten you to it 100 years or so ago). 

Anyone can apply the trademark or service-mark symbols to their distinctive 
word, name, or symbol at any time; you don't have to get anyone's permis- 
sion to do so. If, however, you want to legally protect the trademark to ensure 
that someone else doesn't steal it away from you (not a bad idea, in our 
humble opinions), you should consider registering it. Trademarks and ser- 
vice marks can be registered through some state governments, for protection 
only within the state in which your business is located, or through the U.S. 
Patent and Trademark Office (USPTO) if you would like nationwide protec- 
tion. When your trademark is registered on a nationwide basis, you're able to 
use the familiar ® symbol on your products and product information. 

If you're wondering whether someone has already registered a trademark or 
service mark, you can look it up on the USPTO trademark database online at 

www. uspto. gov. 


Part III: Avoiding Problems 


A trademark may not prevent someone from stealing (or mistakenly using) 
your unique word, name, or symbol, but it will provide you with legal recourse 
in court in case someone does. And in the long run, that may be worth its 
weight in gold to you and to your business. 


Copyright is a form of protection provided to the authors of "original works of 
authorship," including literary, dramatic, musical, artistic, and certain other 
intellectual works, both published and unpublished. This book is copy- 
righted. The script for the latest Harry Potter movie is copyrighted. That song 
you were humming in the shower this morning is probably copyrighted. The 
1976 Copyright Act generally gives the owner of copyright the exclusive right 
to reproduce the copyrighted work, prepare derivative works (a derivative 
work is one taken from something that preceded it and owes its existence 
to the original work), distribute copies or phonograph records (those big, 
round, black things that people used to buy before the invention of compact 
discs) of the copyrighted work, perform the copyrighted work publicly, or 
display the copyrighted work publicly. 

A copyright is automatically created when the work itself is created — no 
need to file any forms or pay someone a bunch of money to copyright your 
work for you. As is the case with trademarks and service marks, you can 
apply a copyright symbol (©) to your work at any time without getting 
anyone's approval to do so. If, however, you want to be able to legally protect 
your work (again, a smart move, in our humble opinions), you should register 
your copyright and apply the © to it. You'll discover plenty of advantages to 
registering your copyright: 

is* Registration establishes a public record of the copyright claim — 
extremely valuable evidence that you have a right to it. 

i** Before an infringement suit may be filed in court, registration is neces- 
sary for works of U.S. origin. 

v* If made before or within five years of publication, registration will estab- 
lish that the facts stated in the certificate of copyright are presumed to 
be true unless proven otherwise. 

*<* If registration is made within three months after publication of the work 
or prior to an infringement of the work, damages specified by statute (or 
law) and attorney's fees will be available to the copyright owner in court 
actions. Otherwise, only an award of actual damages and profits is avail- 
able to the copyright owner. 

u^ Registration allows the owner of the copyright to record the registra- 
tion with the U.S. Customs Service for protection against copies being 
imported that infringe on your copyright. 

Chapter 11: Legal Do's and Don'ts 22 / 

Getting information about trademarks, 
copyrights, and patents 

If you need more specific information about k" Copyrights: Copyright Office, Library of 

trademarks, copyrights, and patents, help is on Congress,, (202) 

the way. Simply surf yourway overto any ofthe 707-3000 
following Web sites for lots more information: 

i* Trademarks and patents: U.S. Patent and 
Trademark Office, www. uspto. gov, (800) 
786-9199 or (703) 308-4357 

Registering your copyright gives you, as the creator of the work, protection 
for your entire lifetime plus 70 years (ideally, that should be long enough to 
cover you). Registering your copyright is simple: Fill out a brief form, and 
submit it with a check for $30 and a copy of your work to the Copyright 
Office at the Library of Congress. For complete details, visit the Web site for 
the Copyright Office at www.copyri ght .gov. 


A patent for an invention is the grant of a property right to the inventor, issued 
by the USPTO. The term of a new patent is 20 years from the date on which 
the application for the patent was filed in the United States and, in special cir- 
cumstances, from a filing outside the United States at an earlier date. U.S. 
patent grants are effective only within the United States and its territories 
and possessions. 

The idea of patents is to allow the inventor or patent holder an exclusive 
right to obtain the full financial benefits of his or her invention — allowing his 
or her investment of time and money to be recovered — before others are 
allowed to help themselves to a piece of the financial pie. You can appreciate 
the value of such protection if you spent ten years of your life designing a 
new kind of mousetrap — far superior and more cost-effective than any cur- 
rently on the market — and began selling it, only to have someone immedi- 
ately copy it and undercut your price, putting you out of business in the 
process. In such a case, a patent is essential. 

What can and can't be patented has been subject to much debate over the 
years — witness the current furor over the patenting of genetically modified 
seeds for corn and other crops, and unique software programs such as 

22 O P art '" : Avoiding Problems 

Amazon. corn's 1-Click ordering process. But the law says that any person 
who invents or discovers any new and useful process, machine, manufacture, or 
composition of matter, or any new and useful improvement thereof, may obtain 
a patent, subject to the conditions and requirements of the law. 

^ fcSS/ p^, if you think you have an item that can and should be patented, our advice is 
^f g<?| y' to run — don't walk — to a competent patent attorney. The patent applica- 
tion process requires considerable research, and the appropriate forms have 
to be filed the right way and at the right time and place. When we're talking 
about something that may turn out to be your source of income for many 
years into the future — and could very well make you rich — this is not the 
time or place to try doing it yourself. Although filing a patent isn't inexpen- 
sive, a competent patent attorney can save you lots of time, money, and 

Zoning, Licensing, and Permits 

Uh-oh — this is where the red tape really gets sticky . . . and thick. No matter 
which governments — federal, state, or local — have jurisdiction in your par- 
ticular place of business, you can bet they all have something to say about 
how, when, and where you can and can't run your business. Although you 
may have an easier time sticking your head in the sand and ignoring all the 
rules and regulations that these different government organizations want you 
to follow, you do so at your risk. When sufficiently motivated (as they will be 
if your neighbors complain to elected officials about cars that suddenly start 
parking in front of your house), most government agencies and departments 
aren't the slightest bit shy about issuing fines, imposing penalties, and — if 
compliance is not forthcoming in a reasonable amount of time — closing 
down offending businesses. 

Working your way through the maze of government regulations can certainly 
be one of the most confusing aspects of doing business, but it is critical for 
your success in the long run. Yes, the process can be intimidating, and yes, 
you'd probably much rather be selling your products and services than 
messing with all this red tape and paperwork, but it will definitely be worth 
your while to dig in. 

<jjMNG Instead of ignoring government regulations and requirements, consider this 

^fj^/k step as one that will enhance the professionalism of your business. In order 
I ^0\ for people to take you and your business seriously, you need to establish 
V J your business in a professional way. And for many home-based businesses, 

being taken seriously is one of the key steps to finding long-term success. 

Chapter 11: Legal Do's and Don'ts ££y 



For some reason, many homeowners — particularly ones who live in quiet 
residential areas — don't much like the idea of having a busy (or loud, or 
spotlit, or junky, or otherwise obnoxious) business move in next door. Just 
the thought of a constant parade of customer cars coming and going at all 
hours of the day or night, the clatter and noise coming from a makeshift 
appliance-repair shop out in your garage, or the vision of partly assembled 
cars littering the driveway is enough to send many homeowners into a fit of 
concern or even anger. And indeed, when people buy their homes, they (sur- 
prise!) generally expect to get some measure of peace and quiet along with 
them. Few homeowners awakened to the sound of grinding metal at 7 a.m. 
are happy homeowners. 

Peter remembers the time a few years ago when one of his next-door neigh- 
bors decided to open an automobile-restoration business in his backyard. 
That wouldn't have been so bad in itself except for the loud air compressor 
that the neighbor found necessary to run 12 hours a day to drive his sand- 
blasting equipment — waking Peter's year-old daughter and making writing 
his books and articles a difficult proposition during daylight hours. It took 
Peter six months — from the day he first complained to his neighbor about 
the noise (and being told to jump in a lake) to the day that the city zoning 
department finally shut down the operation — to get relief. But he did even- 
tually get relief. 

Zoning laws are, among other things, the government's favorite way of trying 
to keep residential areas residential and business areas business — making 
everyone (well, almost everyone) happy in the process. And in general, zoning 
laws do work. After a citizen makes a complaint, most jurisdictions follow an 
established procedure to determine whether a business owner is breaking the 
rules or not — and take action only when necessary. Unfortunately, the very 
zoning laws that attempt to ensure that someone doesn't decide to build a 
coal-fired power generation plant across the street from your house are also 
the same laws that may restrict (and in some cases prevent) you from starting 
a business in your own home. 

Here are some of the categories of rules that zoning laws may impose in your 
particular city or county: 

*<* Advertising signage 

u* Parking and vehicle traffic 

v* The percentage of your home devoted to business 

£jO P art '" : Avoiding Problems 



is* The number of people you employ and the jobs you employ them to 

v* The use of hazardous materials and chemicals 

*<* Noise, smoke, and odor 

One more thing: While your local zoning laws may permit you to run your 
home-based business as you intend, your particular neighborhood may have 
covenants or other deeded restrictions on those very same activities. Check 
your real estate purchase documents to see if such covenants or restrictions 
may apply to you. 

So what can you do if zoning regulations make your home-based business ille- 
gal or are so restrictive that you can't operate your business effectively? You 
can certainly ignore the regulations and hope you don't get caught, but that's 
not really the best long-term solution. You are apt to discover that at least 
one of your neighbors is not going to be happy about some aspect of your 
business and will file a complaint. Not only that, but also, if you operate an 
illegal business, you're breaking the law. And if you break the law, you had 
better be ready to pay the consequences (we'll keep an eye on the Court TV 
listings just in case you make an appearance). 

A better idea is to try one of the following approaches: 

v* Request a variance. Government agencies and departments routinely 
grant variances to rules and regulations. Often, you only have to fill out 
a short form. In other cases, your request may have to be publicly heard 
before your city council, zoning board, or other body (in the case of con- 
flicts with neighborhood covenants, you may need to appeal to your 
neighborhood association). Check with your zoning or planning depart- 
ment to find out what options are available for you. 

t-" Fight city hall. In some cases, you may have no other choice but to take 
action to change the rules or regulations that restrict your ability to 
start and operate a home-based business. A variety of approaches are 
available to you, from buttonholing your district's council member, to 
circulating a petition, to lobbying for legislative change, to filing a law- 
suit. The exact action you take depends on your community's political 
environment. If you have any friends, relatives, or business acquain- 
tances who have had to take on city hall, ask what worked for them. 

Although zoning regulations can get in the way of your home-business plans, 
they don't have to be the end of your dream. If the rules aren't in your favor, 
you have legally viable options for either bending them or changing them. 

Chapter 11: Legal Do's and Don'ts 23 7 

Licensing and permits 


There really is a business license or permit for most any occasion. Which 
ones does your home-based business need? It really depends in which city, 
county, and state your business is located. 

Ask questions, starting with your city and/or county government. Describe 
the kind of business you have in mind, and a friendly worker will likely direct 
you to the appropriate forms and requirements. They may even have a spe- 
cial booklet or package of forms specifically for new or home-based busi- 
nesses. After you check with your local government, contact the state and 
federal agencies that apply to your business. 

Some of the most common licenses and permits include the following: 

is* Business license: This is the standard permit to operate a business 
locally, and it is required of most every business, no matter how large 
or small. Check with your local business agency for details. 

i^ Home occupation permit: If your community restricts home-based busi- 
nesses, you need one of these. 

*-" Miscellaneous local permits: Contact your local business agency to see 
if any other business permits are required. 

l** Police permit: Some businesses require police clearance or permit. You 
may also need a police permit if your business has an alarm that gener- 
ates a police response when it goes off. 

is* Food permit: For businesses that make or sell food. 

V Seller's permit: Required for businesses that sell taxable products in 
states with sales tax (there are just a few that don't have sales tax). 

The definition of taxable products varies from state to state. Graphic 
design services, for example, may be considered a nontaxable service 
in one state but taxable in another. 

U* Building permits, fire certificates, and zoning permits: Check with 
your local planning department for restrictions on the kinds of business 
activities that can be conducted in your home. Some localities, for exam- 
ple, restrict home-based businesses that operate in residentially zoned 
communities from having customers come to the place of business. 

*<* State occupational licenses: Certain occupations (for example, doctors, 
lawyers, general contractors, day-care providers, and so on) require a 
special license. Check with the state agency regulating consumer affairs. 

232 P art "' : Avoiding Problems 


t^ Federal export licenses: If you want to export goods to another country, 
your business will be subject to all kinds of federal regulation. Get more 
information on this from the U.S. Department of Commerce at www . doc . 
gov. A number of optional certifications can help in some situations: You 
may want to look into being certified as a small business, minority-owned, 
woman-owned, or disabled-veteran-owned enterprise. 

Don't get discouraged by all this paperwork and red tape. Your own business is 
the light at the end tunnel created by all of these blasted forms. Remember that 
people are ready, willing, and able to help if you feel overwhelmed. Contact 
your local Small Business Development Center, chamber of commerce, or other 
local economic development organization for guidance on these local and state 
and federal issues; you'll be glad you did. 

Tax Requirements 

You can be sure that your business is going to owe taxes to somebody, some- 
where, particularly if your business is making a profit. Depending on the state 
where you're located, the kind of business you conduct, and the form of busi- 
ness you select, you may owe taxes to many different people in many differ- 
ent places. 

Take a look at the following list for a hint of the kinds of taxes you can look 
forward to paying when you own your own home-based business. Now you 
know why good accountants and tax advisors are so popular with all kinds of 
businesspeople, including owners of home-based businesses. 

*«* Income tax 

U* Self-employment tax 

v* Estimated tax 

«-" Social Security tax 

U* Unemployment tax 

*<* Sales tax 

i* Excise tax 

V Use tax 

v* Business tax 

For much more information about taxes — including what taxes you need to 
pay and ten key ways to reduce your income tax burden — take a look at 
Chapter 10. 

Chapter 11: Legal Do's and Don'ts 233 


Starting a collections agency 

Q: I am interested in starting my own collections 
agency, but I'm unclear about the rules and reg- 
ulations I will have to follow in doing this busi- 
ness, as well as the types of software and other 
materials I will need. 

A: We dropped starting a collections agency as 
a home-based business from the newedition of 
our book Best Home Businesses of the 21st 
Century for two reasons. The first reason is 
because of the hostility we experienced toward 
home-based collection agencies when we 
listed the industry trade association as a 
resource in the first edition of the book. The 
second is that when we called the home-based 
collections agencies we'd previously inter- 
viewed, none was still in business. 

Furthermore, one of the previously most suc- 
cessful specialties, collecting court-ordered 
child support, has been pre-empted by state 

governments, which can now, as a result of fed- 
eral legislation, garnish the bank accounts of 
delinquent parents. 

However, if you can find a viable niche such as 
collecting on day-care accounts, heating-oil 
accounts, veterinary bills, or some other types 
of collection, this business may work for you. An 
example of a home-based agency that is doing 
well can be found 

The major piece of legislation you need to 
becomefamiliarwith isThe Fair Debt Collection 
Practices Act. That, a telephone, a computer, 
and some clients are all you need to get started. 
Collections software programs include 
Debtmaster from Comtronic Systems, (509) 
674-7000,; Collect!, 
(250) 391-0466,; and 
Collection Resource System, (703) 934-9060, 
www.crsoftwareinc. com. 

23*) ' >art '"■ Avoiding Problems 

Chapter 12 

Using Outside Resources 
and Experts 

In This Chapter 

Creating trade accounts 

Taking advantage of support services 

Using professionals in your business 

■ W kay. So you're the boss, owner, and chief bottle-washer of your very 
^^ own home-based business. Now what? In theory, you could probably 
do each and every thing on your own — from reviewing contracts to picking 
the best insurance coverage to representing your business in court to design- 
ing and printing your own letterhead stationery — but you really should 
think twice before doing so. Specialists — lawyers, certified public accoun- 
tants, insurance brokers, and others — are much more knowledgeable and 
up-to-date about certain topics than you can ever be, and using their services 
frees you to focus on doing the things that you do best. 

Beyond these outside professionals, there are a variety of outside resources 
that you should (and likely will have to) consider using when the opportuni- 
ties present themselves. Establishing trade accounts with the outside vendors 
you'll rely on to sell you the products and services you need to do business is 
just one example. 

In this chapter, we look at why, when, and how to take advantage of outside 
resources. Doing so can give you a real edge against your competition and help 
you provide your customers with the best products and services possible. 

23 Part lll: Avoiding Problems 

Establishing Trade Accounts 


A trade account is an informal agreement between you and a supplier or 
vendor — such as an office supply store, printing company, or warehouse 
superstore — that allows you to purchase goods or services on credit and be 
billed by the supplier on a regular, usually monthly, basis. Trade accounts are 
a win-win situation for both parties — you can purchase whatever you like 
whenever you want, and your supplier gains a steady customer. 

The care and maintenance of trade accounts is essential for almost any busi- 
ness, because they speed the purchasing process and remove much of the 
red tape that can slow vital business transactions. Not only that, but also, 
when a company agrees to establish a trade account with you, its manage- 
ment is essentially agreeing to extend a short-term, interest-free loan to your 
company — allowing you to pay your bill anywhere from a few days to a 
month or more after you complete your purchase and receive your goods or 
services. That is a good deal for your company, and one worth actively pur- 
suing and maintaining. 

You may find that some of the following trade accounts will be beneficial for 
you to establish in your business: 

is* Product vendors: If you sell products on a retail basis, you have to 
buy them from vendors or purchase the raw materials from suppliers. 
Establishing trade accounts will make your life much easier; you'll be 
able to place orders now and be invoiced for your purchases later. 

v* Office supplies: If you regularly purchase large quantities of office sup- 
plies, consider building a relationship with one office supply vendor that 
can meet your needs quickly and accurately. The big office supply chains 
Staples and Office Depot offer frequent buyer programs that provide cus- 
tomers with a variety of financial rewards in return for their loyalty. 

*-" Warehouse superstore: Warehouse superstores, such as Costco and 
Sam's Club, offer everything most home offices ever need — from appli- 
ances to office supplies to groceries and baked goods — at great prices. 

*<* Copying/reproduction: If you constantly find yourself sending jobs out 
for printing or copying, you may want to establish a trade account with 
your printer so that you're billed monthly instead of having to pay every 
time you run a job. Copy centers such as Kinko's offer their own charge 
cards to business customers, which are billed out on a monthly basis. 
The monthly invoices, which present detailed information about each 
order, are also a great way to keep track of your copying and reproduc- 
tion jobs. 

*<* Office equipment repair: Has your computer's hard drive ever crashed? 
If so, you know just how scary life can be — and how dependent you are 

Chapter 12: Using Outside Resources and Experts £j / 

on office machines and equipment. It can really pay off to have an estab- 
lished relationship with a good computer/office equipment repair person 
before — not after — your equipment goes down. The question isn't 
whether your office equipment will break, but when. Even if you don't go 
through the trouble of establishing a relationship with an office equipment 
repair company before you need it, do take some time to become familiar 
with who's good and who's not so good. That way, when the inevitable 
emergency does occur, you'll know right where to take your sick machine. 

V Support services: Numerous support services are available to you, 
depending on the nature of your business. From typists and architects to 
paralegals and consulting engineers — you can establish relationships 
and trade accounts with most anyone you like. (In the next section, we 
address how to decide which support services you need and then how 
to identify and hire them.) 

w* Courier/messenger services: Although more and more transactions are 
being handled over the Internet, some items, such as products and signed 
documents, must be physically received. When you establish an account 
with an overnight courier service such as FedEx, UPS, or DHL, or with a 
local messenger service, you'll receive preprinted, multipart shipping doc- 
uments or air bills. Even better, most of these companies now allow you to 
set up your shipments online, printing out shipping documents on your 
own computer and making it easy to track your package's progress — 
from your home office to your customer's front door. 

Trade accounts are a good thing, and you should try to establish them with 
all your regular vendors, suppliers, and service providers. Not only will they 
streamline your business dealings, but because you hold onto your money 
for a longer period of time, your cash flow will be improved as well. 

It also works the other way — other businesses may want to establish trade 
accounts with you. Allowing them to do so may make a lot of sense, because 
it can encourage repeat business and the development of long-term business 
relationships. You must, however, protect yourself from customers who don't 
pay their bills. Check credit references scrupulously. Don't just take their 
word for it — especially if you've got a lot of money on the line. Do a Google 
search for credit application form, and you'll find plenty of sample forms that 
you can easily adapt for your own purposes. 

Usinq Support Services 

With just 24 hours in a day, if you're the sole proprietor and only employee of 
your home-based business, you may find that you have difficulty doing day- 
to-day support and administrative tasks while still doing the work that your 
customers pay you to do. This is where using support services comes in. 

2 jO P art '" : Avoiding Problems 


Using a service to take orders 

Q: I sell several different mail-order products, 
and things have gotten too busy for me to take 
all the orders. Can a service take orders for me? 

A: Absolutely. They'll also print address labels 
for you and provide your customers with per- 
sonalized service. Look in the Yellow Pages 
under Telemarketing or Answering Services, or 
use these same key words to search Internet 
Yellow Page services such as 


V www. 


u* www.canada411 .ca 

The costs for such a service — according to 
Howard Goodman, president of the telemarket- 
ing company Goodman Communications West 
and author of Seven Steps to Successful 800, 
Radio and TV Direct Response Campaigns — 
begins at around $500 a month after an initial 
setup fee of $1,500. Setup fees include the first 
month's service and 500 minutes of phone time. 
Goodman's booklet is available free by calling 
(800) 466-8595. 

Support services include everything from short-term employees to temporary 
employment firms to hiring professionals such as lawyers, accountants, and 
consultants — in fact, they potentially include just about any business ser- 
vice you can imagine. 

Consider using support services for the three following reasons: 

i** People out there have more experience than you. Do you know how 
to file a patent application? Or the best way to set up a computerized 
accounting system? Or which health care plans are the best deal 
for home-based businesses in your state? If not, support services 
providers — many of whom are owners of home-based businesses 
themselves — do. People who provide support services are specialists 
at what they do, just as you're a specialist at what you do. One of the 
great things about using support services is that you can take advantage 
of as much or as little of their experience as you like — usually for a rea- 
sonable hourly fee. 

v* You can leverage your experience. Certain support-services use, such 
as hiring a temporary employee as an assistant, can allow you to lever- 
age your own experience — greatly increasing your effectiveness in the 
process. By teaching another person to perform a high-dollar-return task 
that you're expert in, that person can then do the same thing you're 
doing, instantly multiplying the effort spent on that task while substan- 
tially increasing the financial return. For example, why not consider 

Chapter 12: Using Outside Resources and Experts £j y 


hiring someone to make cold calls to prospective customers or create 
and distribute flyers advertising your business? While you're busy work- 
ing, she can be drumming up new customers. 

u* You can focus your efforts. Instead of getting caught up in all the details 
of running a 500-copy brochure (finding the right kind of paper, using the 
right machine, dealing with jams and equipment breakdowns, collating, 
and folding), why not just drop it off at Kinko's or another copy center, 
and let them worry about it? That way, you can focus your efforts on the 
things that bring money into your firm — such as selling products and 
writing proposals. 

Leasing employees 

Q: I have a home-based medical-billing busi- 
ness, and I am ready to hire employees. 
Because I didn't want to hassle with payroll, 
workman's comp, and so on, I called several 
employee- leasing companies. To my surprise, 
none would provide me with employees, 
because I'm home based. What should I do? 

A: We're surprised and appalled to discoverthat 
some employee leasing companies are dis- 
criminating against home-based businesses! 
Like many home-based companies, we use 
employee leasing ourselves. We've worked 
with two different companies for over five 
years, and the results have been more than sat- 
isfactory. So we recommend thatyou keep look- 
ing to find more-enlightened companies. 

Be sure that you're actually contacting 
employee-leasing companies — not temp 
agencies. Professional employee organizations, 
as they are called, carry out the administrative 
functions of having employees. You recruit the 
personnel, interview them, and select them. 
When you're ready to put them to work, you 
contact the leasing company, which puts them 
on the payroll and handles all aspects of their 
employment for you. Temporary-help agencies. 

on the other hand, recruit, interview, and train 
employees whom they send out to work with 
companies on a short- or long-term basis. 

For many years, we've been aware that some 
temporary agencies will not place their temps 
in home offices. But according to Bruce 
Steinberg, director of Research and Public 
Relations for the National Association of 
Temporary and Staffing Services, some temp 
agencies do. He recommends that if you have 
an employee in mind or want to find someone 
yourself, you should work with an employee- 
leasing company. If you want an agency to find 
and place someone to work in your business, 
you should contact a temporary-help agency. 

To locate such companies, you can contact the 

*<" The National Association of Professional 
Employer Organizations, 901 N. Pitt St., Suite 
350, Alexandria, VA 22314, (703) 836-0466, 

(-"American Staffing Association, Suite 200, 
277 S. Washington St., Alexandria, VA 22314, 
(703) 253-2020, www 

2 4 Part lll: Avoiding Problems 

So what kinds of support services should you consider using for your home- 
based business? Here's a partial list (many more are available to home- 
business owners): 

*<* Copying, printing, and graphics design 

v* Public relations 

V Packaging and shipping 

*<* Professional services such as accounting, legal, banking, and so on 

v* Temporary help 

v* Advertising 

f" Cleaning 

Although you may have plenty of time to do these tasks when your company 
is new and has little business, after it starts to grow, you'll want to devote 
more time to the selling and customer-fulfillment processes and less to the 
kinds of tasks that don't directly generate cash for the business. 

Finding Good Lautyers, Accountants, 
and Other Professionals 

When you own your own home-based business, you're responsible for just 
about everything. Whether you're selling your products, paying the bills, or 
taking out the trash, the business begins and ends with you — without you, 
you have no business. 

This doesn't mean, however, that you have to go it alone. Any number of out- 
side professionals are ready, willing, and able to help you build and expand 
your business while ensuring that you're on a firm footing — legally and 
financially. By leveraging the services of key professionals such as lawyers, 
accountants, bankers, insurance agents, and others, a small business can be 
just as effective as a much larger organization — perhaps even more so. 


No matter what kinds of professionals you decide to affiliate with, check them 
out thoroughly before you commit to doing business with them. Don't forget: 
Your goal is to find someone who is not only talented and affordable, but who 
also can grow with you and your company, and become a long-term partner 
and trusted associate. Take your time in the selection process; believe us, the 
time you invest in the process now will pay off many times over in the years to 
come. Consider the following when selecting: 

Chapter 12: Using Outside Resources and Experts £lX / 

f" Qualifications: Hire professionals who are as qualified and experienced 
as possible; your business is not the place where you want them to learn 
the ropes. Do not hire someone who merely dabbles in an area of profes- 
sional expertise or who does it as a hobby You need someone who is a 
pro and is fully committed to your success. 

u* Accessibility: You may have a difficult time getting their attention when 
you really need them. Make sure that the professionals you hire aren't 
already so overcommitted with other clients that they can't meet your 
needs quickly, when you need them the most. 

u* Price: Although you should never select a professional on price alone, 
price certainly does enter into the equation. With some lawyers charging 
well over $300 an hour, every dollar really does count. Don't be afraid to 
shop around for the best combination of skill, experience, and price. 

v* Ethics: Your professionals should have ethical standards that are just as 
high as the standards you uphold. Choosing someone with flexible ethics 
is asking for trouble. 

*<* Compatibility: None of the preceding means much if you aren't compati- 
ble with your chosen professional. Conversely, you may be willing to give 
up some experience or price in exchange for someone you really get along 
with. The ideal situation is to find someone who meets all your criteria 
and is also compatible with you and any business partners and associates 
you may have. 

In the sections that follow, we take a close look at some of the kinds of profes- 
sionals that home-based business owners most often turn to for help and 


Question: How many lawyers does it take to change a light bulb? Answer: 
How many can you afford? Actually, most lawyers really are nice people to 
work with, and they do have other things on their mind besides emptying 
your bank accounts. In fact, an attorney's services are an important part of 
any business's — including any home-based business's — support team. 

What can attorneys do for your business? Here are some of the most 
common tasks attorneys take on for their small business clients: 

W Choosing a form (legal structure) for your business 
v* Writing, reviewing, and negotiating business contracts 
u^ Dealing with employee issues 

£U, 2 Part III: Avoiding Problems 

f" Helping with credit problems and bankruptcy 

W Addressing consumer issues and complaints 

u* Working with rental or leasing agreements 

*<* Outlining workers' compensation and Social Security benefits 

f" Advising you on your legal rights and obligations 

W Representing you in court 

Be sure to seek out an attorney who specializes in working with small busi- 
nesses and startups. Any other attorney may not have the exact skill set that 
you need. If you have a family attorney, start there. If he or she isn't the best 
person for the job, chances are you'll get a good referral to someone who is. 
One more thing: Make a point of asking your attorney how much a particular 
task is going to cost — before you engage his services. There's nothing worse 
than getting a bill that's in the thousands of dollars when you expected to 
pay far less. 



If you're not an expert in accounting — and even if you are but would rather 
devote your precious time to taking care of your customers' needs — getting 
a good accountant is a definite must. Why? Because as the owner of your own 
business, you need to know exactly how much money is going in and out of 
your business and for what purposes it is being used. This knowledge will 
allow you to assess the financial health of your company while assisting you 
in making plans for the future. Not only that, but also, the information con- 
tained in your accounting system provides the basis for determining how 
much you'll owe the government in taxes and other fees. 

Inadequate recordkeeping is a principal contributor to the failure of small 
businesses. A good accountant can be a tremendous help in setting up a 
useful financial recordkeeping system, as well as providing ongoing financial 

Here are some of the most common tasks that accountants perform for their 
small business customers: 

«-" Small business startup, business sale, or business purchase 

u* Accounting system design and implementation 

W Preparation, review, and audit of financial statements 

v Tax planning 

Chapter 12: Using Outside Resources and Experts 2uj 

Iv* Preparation of income tax returns 
C* Tax appeals 

Handle finding and choosing an accountant in much the same way that you 
select any other professional adviser. Check with friends and business associ- 
ates for recommendations. Interview at least three candidates to be sure that 
your personalities are compatible. 

You want to interview your prospective candidates (either in person or over 
the phone), asking and watching for the following: 

*<* Does your candidate have specific experience working with home-based 

t-" Does your candidate show an active interest in the financial aspects of 
your business operations (cash flow, inventory, and so on)? 

V Does your candidate have specific experience with income tax, and does 
he or she keep abreast of the latest changes in the tax law as it pertains 
to your industry? 

t-" What do the candidate's references say about his or her performance 
and reliability? 

v* What is the candidate's fee structure? 

V Does your candidate have a network of other potentially beneficial finan- 
cial contacts within your community (for example, loan officers at local 

t-" Are you comfortable with the candidate, and are your financial philoso- 
phies compatible? 


One thing you'll notice as you search for the right accountant for your busi- 
ness is that some have the initials CPA following their names. A certified 
public accountant (CPA) is an accountant who has met his or her state's mini- 
mum educational requirements and passed a rigorous examination covering 
accounting, business law, auditing, and taxes. CPAs are required to have a 
college degree (this can be offset by extensive work experience, in some 
cases) and must meet an annual continuing-education requirement. This all 
means that when you choose to affiliate with a CPA, you're getting someone 
who is at the top of his or her profession. A CPA may be more expensive than 
a regular accountant, but depending on your specific needs, the extra cost 
may be well worth your money. 

Any skilled accountant — whether or not she has CPA after her name — may 
be just right for you and your business. It all depends on the experience and 
expertise that she brings to the table, as well as her willingness to be available 
to help you when you really need it. Don't exclude good candidates merely 
because they lack the letters CPA. 

2 4 4 Part lll: Avoidin 9 Problems 

Be sure that you have at least a basic understanding of accounting and the 
particular bookkeeping system you're using. Even if you decide to hire an 
accountant to take care of the details, as owner of your own business you 
should and must understand how the financial side of your business works. 
Take advantage of the financial reporting functions of your system, and know 
how to read and interpret your company's financial reports. For more infor- 
mation on doing just that, be sure to check out Chapter 7. 


You want to have a relationship with your bank already in place when you 
need it. You never know when you may need financing. It may be when you're 
in the startup phase of your business or when you get a huge order from a 
customer and need to pay your suppliers before you receive payment. Or it 
could be when your business starts to grow, and you need to finance your 
expansion. And — even if you don't plan to expand any time soon and have 
no need for a loan or financing — depending on the size of the checks you 
deposit, you may not have immediate access to your funds. That often 
depends on your banking relationship, how long your account has been 
open, and your average balance. These ongoing financial needs make finding 
and establishing a relationship with a good local banker a must. 

Peter was shocked to learn, soon after he established a business account for 
his new corporation at a large local bank, that any checks over $500 would be 
put on hold for a week or more while the bank waited for them to clear. Such 
an unexpected outcome can really put the hurt on your fledgling business if 
you're not ready to deal with it. In Peter's case, a combination of lots of beg- 
ging, sweet-talking, and threats to move his account to another bank helped 
keep his cash flowing. 

Establish a relationship with your banker (which most often means the 
branch manager) prior to applying for a loan and before depositing a $10,000 
check that would normally take 10 days to clear. The relationship that you 
have with a banker at the time you apply for a loan can make the difference 
between getting approved and getting turned down. 

The big question is: What kind of financial institution is right for your kind of 
home-based business? Several different kinds of financial institutions are 
available to you, and each has its unique spin on the world of money and 

is* Banks are the first choice of many home-based businesses, and they 
include savings banks, savings and loans, and commercial banks. Banks 
traditionally make a wide variety of loans, both commercial and con- 
sumer, and they are the place to go for special small business loans 

Chapter 12: Using Outside Resources and Experts 2u3 


offered in conjunction with the Small Business Administration (SBA). 
Most also offer special accounts designed specifically for businesses, 
along with a wide array of business-oriented products and services, all 
of which makes them the logical first choice for most businesses. 

*<* Credit unions are similar to banks but differ in that they are owned by 
their members. This results in lower costs of operation, which are passed 
on to members in the form of interest rates on loans and higher savings 
interest rates. Most credit unions specialize in consumer loans rather than 
commercial loans, although many offer special loans to buy home com- 
puters. Credit unions are less likely than regular banks to offer special 
accounts and products and services for businesses, and in some cases 
(for example, if your home-based business is a corporation that issues 
stock), they may not even be able to accept your business as a customer. 

v* Credit card companies offer interest rates that are often significantly 
higher than the rates you would get on the same amount of money from 
a bank or credit union, yet thousands of companies regularly use credit 
cards to finance purchases. Why? Because using credit cards is usually 
far more convenient that applying for a loan every time you want to 
make a major purchase or make some other financial move. Keep in 
mind that even if the credit card has your company name on it, it's likely 
that you are personally responsible for the charges, and even if your 
business fails, the credit card company will be looking for you when the 
monthly payment is due. 

v* Commercial finance companies specialize in working with businesses, 
usually in financing equipment leasing or purchases or the acquisition 
of inventory. The deals that commercial finance companies offer — 
particularly leasing — may offer attractive tax advantages and are worth 
checking out. 

t^* Consumer finance companies are businesses that specialize in making 
loans to borrowers who have a hard time obtaining loans from their 
banks or credit unions, perhaps because they have defaulted on loans in 
the past or because their credit is already overextended. Because those 
borrowers are considered to be a higher risk for defaulting on loans, 
consumer finance companies generally charge significantly higher inter- 
est rates than do banks and credit unions. Consumer finance companies 
should, therefore, be considered a funding source of last resort for most 

Be sure that you anticipate your needs well in advance. Waiting until the last 
minute to develop a relationship with your banker or to apply for a critically 
needed loan is a recipe for financial disaster. 

2 4 Part " l: Avoidin 9 Problems 

Business consultants 

Everyone has talents in many areas, but even you can't be the master of 
everything. Help is on the way, however: Consultants are available to assist in 
those areas in which you need expert help. You can hire business, manage- 
ment, and marketing consultants; promotion experts; financial planners; and 
a host of other specialists who can help make your business more successful. 

Regardless of exactly which kind of consultant you decide to hire, we give 
you nine steps for selecting the right one, adapted from the Institute for 
Management Consultancy Web site at www 

is* Clearly define the objectives you hope to achieve. Describe the job 
you want done, and specify the things you expect from the assignment. 
Understand precisely how you expect your business will benefit from 
the work. Decide on the time frame, scope, and any constraints on the 
assignment. Clarify your own role and how the consultant's time will be 
made available. 

i>* Short-list no more than three consultants, and ask them to provide 
written proposals. Make sure you ask for quotes only from consultants 
qualified to carry it out. Good consultants will be more than happy to 
send you basic information about them and talk with you about your 
needs, without charge. Invite your best prospects to submit written pro- 
posals, which should include the following: 

• Their understanding of the problem 

• Their approach to solving the problem 

• Names and resumes of the consultant(s) who will do the work 

• Experience of the firm 

• References 

• Other support provided by the firm 

• Work plan 

• Reports and/or systems that will be supplied to you 

• Fees, expenses and schedules of payment 

• Any inputs required from you 

is* Brief the consultant properly. Prepare a concise brief that clearly defines 
the objectives, scope, time frame, reporting procedure, and constraints 
of the project. Remember that the cheapest quote will not necessarily give 
the best value for your money and that consultant fees may be negotiable. 

Chapter 12: Using Outside Resources and Experts 2£i / 


*-" See the individual consultant who will do the job, and make sure that 
the chemistry is right. Successful consulting requires goodwill in human 
communications. Meet the consultant who will be doing the job, and 
brief him or her well, using a written brief and any background informa- 
tion that you think necessary. Talk through your chosen proposal with 
the consultant before making a final decision to ensure that you have 
any concerns answered. If you're not happy with any aspects of the pro- 
posal, don't feel pressured to accept them. Continue discussions with 
the consultant until you reach a full agreement on the proposal. Select 
the firm or individual that you feel has the best qualifications and expe- 
rience and that you feel you can work with comfortably. 

i^ Ask for references from the chosen consultant, and follow them up. 

Ask the firm or individual for names or written references from former 
clients in order to verify the consultant's suitability for the assignment. 

is* Review and agree to a written contract before the assignment starts. 

This almost goes without saying, but we're going to say it anyway. And 
while you're at it, have your lawyer take a look at the contract before 
you sign on the dotted line. 

is* Be involved and in touch during the assignment. Using consultants 
effectively demands a commitment of time as well as money by clients. 
Remember that you must keep in touch with the progress of the assign- 
ment if you're to get the most from it. Consultants are likely to be most 
cost-effective when working on an agreed program and time frame. Make 
sure that you hold regular progress meetings and that the consultant 
keeps you fully briefed on progress against the program. 

is* Ensure that the consultant doesn't save surprises for the final report. 

The consultant's report is often his or her most tangible deliverable 
(what you provide in fulfillment of a contract), but it must be in a format 
that's beneficial to you. If necessary, ask the consultant to produce a 
draft report so that you can review the findings and recommendations 
before the final report is produced. The final report should contain no 

i* Implement the recommendations, and involve yourself as well as the 
consultant. You may need to make arrangements for the consultant to 
help with the implementation. This can be done cost-effectively by 
involving the consultant in regular progress meetings. Get a written fee 
quotation and proposal for any implementation work, even if it follows 
directly from an assignment. 

Hiring the right consultant for your business at the right time can mean the 
difference between just getting by and achieving tremendous success. 

£[1 q Part III: Avoiding Problems 

Insurance agents and brokers 

Not only are there a dizzying array of different insurance policies and pro- 
grams available to businesses, but there also are hundreds of insurance com- 
panies to choose among. Which offers the best coverage for you? To get an 
inkling of the answer, you have to extensively research insurance policies and 
companies — definitely not the best use of your time. 

A better way to find out what insurance is available (and necessary) for your 
business, and which deals are the best for you, is to use insurance agents and 
brokers. Insurance professionals can save you precious time and money — 
sometimes thousands of dollars — while providing you with the peace of 
mind that comes from knowing your insurance needs are being met. 

Not only can a good insurance agent or broker advise you about the type and 
amount of coverage that is best for your business, but he or she can probably 
also tailor a package that meets your specific needs at reasonable rates. All of 
these services are worth their weight in gold to busy home-based business 
owners who have neither an extensive knowledge of insurance and risk man- 
agement nor the time to mess with it. 

What's the best way to choose an insurance agent for your business? Here 
are our suggestions: 

is* Solicit bids from two or three established agents to see who can deliver 
the lowest price for a specified level of coverage. 

u* Evaluate the professional experience and qualifications of prospective 
agents as though you were choosing a new attorney or accountant. 

v Interview prospective agents with an eye toward the same qualities you 
seek in a key employee. 

The following steps can help you find the agent or broker who will be the 
best person for your business: 

u* Look for an agent who is knowledgeable about your industry and who 
regularly works with home-based businesses; different companies have 
different needs. A wildlife photographer, for example, has much different 
insurance needs than does a home inspector. And what's good for a 
high-tech company may not necessarily be right for an e-commerce 
operation or retail outlet. One thing is for sure: No one agent can effec- 
tively keep up with every different kind of insurance for every different 
type of business. 

v Ask your friends and business associates for referrals to good agents or 
brokers, or check with professional and trade associations. Be sure to 
look for someone who regularly handles accounts of your size (many 

Chapter 12: Using Outside Resources and Experts ^u y 

agents and brokers consider one-person businesses too small to be 
worth the "trouble" to service). Expect your agent to add value to your 
enterprise, just as an attorney or accountant does. 

«-" Choose an agent who is knowledgeable, dependable, loyal, and a good 
communicator. You want the agent to work well for you and know how to 
expedite claims when necessary. Check out the agent's support structure 
to make sure it is adequate to handle your account. Visit the agent's office, 
and meet the people who handle day-to-day operations. Confidence in 
them will increase your confidence in the agent or broker. 

Insurance is an important part of every business, and it will pay off for you 
to get the best advice possible. Although most home-based businesses never 
have to use their insurance, if you need it — because of an auto accident, fire, 
product-liability lawsuit, or other covered risk — you'll be glad you have it. 

Cashing In on Barter 

Bartering means trading goods or services without exchanging money. Even 
so, bartering does have implications for your cash flow. Can home-based 
businesses benefit from bartering? The following story can illustrate. 

"Barely surviving" is how Gilles Tessier of Moncton, Nova Scotia, described 
himself when in 1998 he needed to come up with $400 to print flyers for his 
lawn care and landscaping business. He was beginning the spring with only 
14 customers and a broken-down truck, and he needed more to make a living. 
It was during this low point that he saw a television news story about a man 
who had put his son through flight school through bartering. Gilles, who has 
a college degree in small business management, immediately contacted 
Maritime Barter Associates, a local barter exchange, which had grown out 
of the reorganization of a franchised barter operation. 

After paying a membership fee of $375, he immediately bartered his lawn-care 
services in exchange for printing and a van to replace his truck. Tessier, whose 
work at North of Eden Landscaping is seasonal, now hires up to four employ- 
ees to help him. During the long Canadian winter, he uses his van to pick up 
and deliver goods for business customers in Canada and down the eastern 
seaboard of the United States. Barter plays a role in this, too: He has gotten 
his van repaired on the road and hasn't paid for a hotel room in five years. 

His barter exchange works as many do. In addition to joining and annual 
membership fees, he pays the exchange 10 percent of the value of what he 
receives in barter — in cash. When his services are used, he provides the 
equivalent of 3 percent of his services to the barter exchange. So when Gilles 

230 P art '" : Avoiding Problems 

receives barter goods or services worth $10,000, he pays the exchange $1000. 
If he provides $1,000 worth of services to an exchange member, the exchange 
credits itself with an additional $30 worth of his lawn care. 

Tessier observes, "When you first start a business, you have little cash flow. 
You must depend on your customers to pay you on time, and if someone 
doesn't, you have to phone to ask for payment. By bartering, I can in effect 
keep cash in my business by in effect borrowing from other businesses." 

Here are six tips for taking advantage of bartering in your business: 


v* A bartering exchange or club is a company that serves as a clearinghouse 
for getting barterers together. Another way to think of a bartering 
exchange is as a bank for keeping track of barters in terms of barter 
points, credits, or "dollars," rather than direct barter, in which you swap 
your service or product for the service or product of someone else. 

is* Membership in a bartering exchange costs money. Besides the initial 
registration fee, exchanges charge a 12 to 15 percent fee per transaction, 
due in cash. Some exchanges also charge monthly fees. You can find 
local bartering exchanges through one of two bartering organizations: 
the International Reciprocal Trade Association (IRTA) and the National 
Association of Trade Exchanges. Both have online directories listing 
their member exchanges on their Web sites (www . i rta . net and www . IRTA has a checklist of things to consider before joining a 
bartering exchange. Another way to learn about local bartering clubs is 
through BarterNews magazine (www . barte mews .com). 

v If you don't want to join a bartering exchange, you may be able to find 
barter partners on www, for which there is no charge. 
Some Web sites also post a notice that they will barter. 

*<" Take into account that barter is considered a form of income and has tax 
consequences. Whether or not you join a bartering exchange, the fair 
market value of goods and services exchanged must be reported as 
income in the year you receive them, but you may deduct costs incurred 
to perform the bartered work. Barter exchanges must comply with their 
own reporting requirements on Form 1099-B for all transactions. 

j"* Beware of scams on the Web, and check out local exchanges as you 
would any other business, using perhaps the Better Business Bureau 
(www . bbs .org). And be sure your barter exchange is filing the proper 
tax reports. Existing members can tell you if they've been getting 1099s. 

v* Be selective about what and how much you barter. Read barter contracts 
in detail to be sure you have legal recourse if something goes amiss. 

Chapter 13 

Eluding Scams, Rip-Offs, and 
Other Headaches 

In This Chapter 

Uncovering scams and rip-offs 
Researching bogus opportunities 
Checking out the latest rip-offs 


■ f you compare statistics from the Federal Trade Commission and the Small 

«£ Business Administration, you'll find that just about as many people are 
victims of business-opportunity scams as actually start new businesses each 
year. Why do more than half a million people a year fall victim to fraudulent 
business opportunities year after year? 

v* Although the business world has long been fertile ground for scams, cons, 
and outright fraud, the Internet has made it easier and cheaper for scam- 
sters to reach more victims. Also, seeing how other scammers work, they 
each become better at pushing the buttons of the desperation and desire 
so many people have. 

v* Most people do not complain about being victimized. Some are embar- 
rassed; others regard collecting "business opportunities" like a crap- 
shoot ("Maybe this one will work"). And a few, despite experience and 
the warnings they read and hear, including what they'll read on these 
pages, believe that if something were really bad, the government would 
have closed it down. 

*<* Despite hotlines and Web sites where potential victims can check out 
business-opportunity vendors, many, if not most, scams never get 
listed — and often when they do, the seam's perpetrator has changed 
its name or moved onto a new scam. 

As a result, many people find it hard to tell whether a promising opportunity 
is real or a scam. 

25^ P art '" : Avoiding Problems 

Sniffing Out the Scams 

Can you tell a scam from legitimate business opportunity? Are you certain? 
Here's a sample. Is it a scam, or is it real? 

It's So Simple To Earn $2,000 - $5,000 Per Week Nowadays . . . 

We're searching for only ten elite individuals with the work ethic necessary to 
generate a cash-flow for themselves of $2,000 to $5,000 per week, and to 
increase that to over $20,000 per month in as little as four to six months. And 
you know what? If you really have a burning desire and commitment, we guar- 
antee that you'll reach this explosive income! 

Can you read a short script to our qualified leads, and then turn the interested 
prospects over to our electronic sales medium? (You will not be required to do 
any selling.) 

Do you have the self-discipline to ignore the TV for a couple of hours per day? 

Are you looking for a legitimate home-based business opportunity that is not 
multi-level marketing or a chain-letter scheme? 

If you would like to build an amazing income that will grow lightning-fast and 
have you profit $1,000.00 every time only one prospect makes a purchase, this 
is for you! 

You can build the business under our guidance and support without having to 
attend meetings or sell people things they don 't need. 

Call NOW our TOLL FREE, PRE-RECORDED Message: 1-888-555-5555 [note: 
number changed to protect the guilty!] 

We market a real product that pays real commissions to you, $1, 000. 00 per sale, 
just for making the initial contacts. With our turnkey lead generation systems, 
you always talk to people who actually WANT to talk to you. 

You have nothing to lose and there's no risk involved, nor is there any obliga- 
tion whatsoever, and you may be qualified to earn thousands of extra dollars 
per month! 

So call now! The call is FREE, and there is absolutely no obligation, so what 
have you got to lose? Call toll free 1-888-555-5555. 

So what do you think — scam or real? Not sure? Tempted? 

Chapter 13: Eluding Scams, Rip-Offs, and Other Headaches 233 

Well, it's a scam, and we believe that if you do two things when reading an ad 
like this, you won't become another unhappy statistic. These are: 

1. Temper the enthusiasm with a large helping of restraint in the face of 
a business opportunity that sounds "too good to be true" — it is. As 
Professor Barry Commoner observed, "There are no free lunches." Of 
course, the meals served by scamsters aren't free; they're out to take 
your money. But consider this in the context of being skeptical of — no, 
allergic to — promises of hundred- or thousandfold returns. 

When someone makes the kind of return promised by some scams, it 
makes the news. Consider that when Char Crawford, the "Toaster Lady," 
whom Paul and Sarah interviewed on their radio show (www . ws rad i o . 
com/entrepreneur_homebasedbiz), bought a 1939 toaster for $20 and 
sold it for $5200 on eBay, she got on CNN. How often does this happen? 

2. Be alert to red flags. This ad had plenty of them. In the sections that 
follow, you find out how to identify red flags — the warning signs that 
something isn't quite right — that should cause you to pay extra-special 
attention to a seemingly reputable opportunity. Then you must take the 
time to thoroughly check out the red flags before you shell out your 
hard-earned money. 

Let's consider the red flags you want to look for. This section highlights some 
of the most common ways people lose their money to false opportunities and 
often outright scams. 


Yes, this book is about self-employment, but it's important to erect some 
warning signs if you're tempted to seek hourly or salaried work at home 
based on an ad. 


Red {lays 

Iv* Charging a fee for job listings or a job directory even when there's no 
refund promised if you do not find work. 

v* Previously undisclosed government jobs. All federal jobs must be 
advertised, and state and local governments typically have a similar 

«-** Anything involving envelope stuffing or coupon clipping. For examples of 
other scams, go to the Federal Trade Commission's Web site (www . f tc . 
gov), and search yob at home. 

23*) ' >art '"■ Avoiding Problems 

If you are seeking fill-in work while you are developing your business or during 
a slack time, consider bidding for project work on such sites as www . e 1 a n c e . 
com and www . g u ru . com instead of falling prey to job-at-home come-ons. 

Business opportunities 

Any "formula" business you buy is a business opportunity, but certain types — 
multi-level marketing and franchises — have special characteristics. Although 
many, if not, most business opportunities are indeed legitimate, as often as not, 
the ones that solicit you are suspect. But if a business opportunity interests you, 
research it thoroughly to determine whether it's a legitimate opportunity — 
and whether it's a fit for you — before you invest your hard-earned time and 
money in it. 


Red flags 

Iu* You're told that you won't have to sell, that the product sells itself, or 
that it's easy work. 

u* You're pressured to make an immediate decision to buy into the busi- 
ness opportunity. 

f" Earnings claims sound too good to be true. 

u* You're discouraged from letting an attorney review contracts or other 

u* For whatever reason, you cannot talk to prior investors in the business 

u* When you call the company's phone number, you never get a live 
person, only an answering machine, and the company's address is a 
post-office box. 

W The Web site or seller sells many different kinds of "biz ops" and is not 
someone who actually does or has done this business him/herself. 

u* You live in one of the 23 states that require registration of business 
opportunities (California, Connecticut, Florida, Georgia, Illinois, Indiana, 
Iowa, Kentucky, Louisiana, Maine, Maryland, Michigan, Minnesota, 
Nebraska, New Hampshire, North Carolina, Ohio, Oklahoma, South 
Carolina, South Dakota, Texas, Utah, Virginia, Washington), and the busi- 
ness opportunity is not registered. However, many states have thresh- 
olds, like $500, before a business opportunity must be registered. Some 
scam operators take advantage of this — and you guessed it — price 
the business op at $495 or some number that will enable them to avoid 

Chapter 13: Eluding Scams, Rip-Offs, and Other Headaches 233 

U* Testimonials use only people's initials or names that when you try to 
locate the people using directories like swi tchboa rd .com and anywho . 
com there's no listing. Legitimate businesses want to be listed; they 
aren't hiding. 

*«* Your gut tells you something is wrong. 


Most franchises are legitimate, because the amount of money and legal 
compliance involved in offering a franchise is substantial, but this does not 
necessarily make them good investments. 

Even with "good" franchises, serious disputes sometimes arise between the 
franchisees and franchisors. As discussed in Chapter 2, the law requires that 
they give you a detailed disclosure statement, called the Uniform Franchise 
Offering Circular (UFOC). However, this documentation does you no good 
unless you verify everything asserted and have the contract reviewed by an 
attorney who is qualified to do franchise work. 

ji\NG Red (lags 

v The franchise has been around for less than five years. You're most apt 
to be successful with a franchise that was in business for five years 
before it was franchised — and then has been franchised for five years. 

v* You don't receive a copy of the disclosure documents required by law 
the first time you meet, or you are told you don't need to read them. 

v* A list of current franchisees doesn't exist or is curiously short. 

i* You're pressured into signing a franchise agreement without having it 
thoroughly vetted by your attorney. 

*<* You feel that the focus of the franchisor is on selling you a franchise. A 
good franchisor does not necessarily assure that you're qualified. They 
are searching for the right person to add to their organization. 

u* The franchisor is new to the business but not new to franchising — or 
the franchisor is new to the business and new to franchising. 

u* Your gut tells you that something is wrong or any of the red flags for 
business opportunities are present, such as claims of making big profits 
from a small amount of work. 

250 Part lll: Avoidin 9 Problems 

Direct-setting, network marketing, 
mutti-tei/et marketing 

More than 90 percent of the individuals who work in direct-selling programs 
do so part time. A major reason for this is because less than 2 percent in 
most organizations do well enough to produce a full-time income. Regardless, 
the promise of fast (and big!) riches draws a constant stream of people to 
direct selling. 

The reality of the situation, however, is that few people make much money. 
As these disenchanted individuals drop out of the system, established dis- 
tributors feel intense pressure to find and sign up new recruits — recruits 
just like you! 

But there are stellar performers — people like Bea Sherzer in Fern Park, 
Florida, who extols the benefits of the health products she sells. "They 
improved my health so much that everyone began asking me about them." 
Bea told us. "This was the best thing that ever happened to me." 

^^BEfl Unless you're as thoroughly sold on the products you'll be selling — as Bea 

is — and are good at recruiting and selling, which most people are not, do not 
expect significant earnings. Quixtar, the Internet marketing arm of Amway's 
parent company, Alticor, is one of the few companies that reports distributor 
earnings. It does so because of a court settlement many years ago. The com- 
pany reported in its October 2003 SA4400 that the typical distributor earned 
$115 month, the same as for the previous three years. From this amount, dis- 
tributors must pay their own overhead costs, including training, samples, and 
selling materials. As you can see, even for a big player in the direct-selling 
market such as Quixtar, the vast majority of distributors aren't exactly get- 
ting rich quick. 

Sometimes, we meet home-business owners who, trying to supplement their 
income from a principal business that is not producing the earnings they 
want, take on a direct-selling company "on the side." Rarely does this work 
unless it's a natural fit, such as a chiropractor selling supplements to his or 
her patients. 

If you think you're being hustled or pressured to sign up for a program before 
you have a chance to thoroughly check it out, including time to use the prod- 
ucts or services, take a step back. The opportunity will be there — if the com- 
pany is still around (direct-selling companies have a high mortality rate) and 
if you come to feel enthusiastic about what you'll be selling. 

Chapter 13: Eluding Scams, Rip-Offs, and Other Headaches £J / 



Red flags 

The following should get your attention and make you think twice before you 
commit to a particular direct-selling opportunity. 

»-" You're told that you can achieve great success without having to actu- 
ally sell anything. 

**" You aren't provided with the name of the company until after you listen 
to a canned sales pitch. 

v* You are required or pressured to buy inventory. You should be able to 
get started with a kit costing less than $100 and never more than $500. 

u* The company does not specifically agree to buy back any of your unsold 

u* The direct-selling company is not a member of the Direct Selling Associa- 
tion (www.dsa .org/di rectory). In order to belong, companies agree to 
a code of ethics and have been in business for at least two years. 

u* Your gut tells you that something is wrong. 

Keep in mind, if a direct-selling opportunity is a legitimate one, it's not going 
away overnight. (It's estimated that almost nine out of ten direct-selling com- 
panies do not last five years.) And if one does, you're better off without 
having invested your time or credibility with the people you contact, so take 
the time to thoroughly check out any company you're considering. The time 
you spend now is an investment in your future that will pay for itself many 
times down the road. 

Places to Check 

Unfortunately, most people do not lodge complaints about being victimized 
by scams and rip-offs with official agencies, but here are some ways that you 
can sometimes flush out a company you will not be happy with: 

v Better Business Bureau (www.bbb .org), as well as contacting the BBB 
office in the community where the seller is located 

u* Federal Trade Commission (www. htm) 

u* The National Consumer League's National Internet Fraud Watch 
Information Center ( 

v* State consumer protection agencies, sometimes in attorney-general 
offices; sometimes called Bureaus of Consumer Protection when located 
in a state agency other than the attorney general's office 

23 O P art '" : Avoiding Problems 

is* US Postal Service warnings about phony job opportunities and work-at 
home schemes (www. inspect/work 
home. htm) 

*<* A Web search using the company or product name and words like scam 
and fraud 

Finally, Be Wary of . . . 

Aside from the above tried-and-true scams, there are plenty of new and inno- 
vative ones out there — with more popping up every day of the week. Be 
very careful about these new approaches to separating you from your hard- 
earned cash! 

*«" Online "shills" who post messages in Internet forums and discussion 
groups. They are apt to describe others as frauds while extolling their 
own company, making false claims about their earnings. 

is* Due diligence sites, which either for free or a fee promise to purport to 
differentiate honest business opportunities from frauds. 

*<* If you're purchasing something, you can only use a foreign payment ser- 
vice — not a recognized service like PayPal — or you're asked to pay in 
advance or by way of a bogus escrow site. Bogus sites are not always 
easy to identify, because they may use fake logos and graphics from veri- 
fication services like "VeriSign" and confusingly similar names. Using the 
list of places to check in the previous section of this chapter — as well 
as search engines, using phrases like the escrow service's name plus 
fraud and complaint — gives you a fighting chance to spot the frauds. 

A Final Word 

Despite the scamsters and the clever ways in which they snare the unsus- 
pecting as well as people with experience, thousands of people find their way 
to self-employment through formula businesses: franchises, business oppor- 
tunities, and direct sales. If you find the right match, you can save yourself 
weeks and months of time by putting someone else's business model to work 
for you. 

Chapter 13: Eluding Scams, Rip-Offs, and Other Headaches 25 y 


Network marketing over the Internet 

Q: What do you think of direct-selling or network 
marketing, especially over the Internet? 

A: Network marketing is part of the direct-sell- 
ing industry, and the Internet does play a role in 
network marketing, though small in proportion 
to face-to-face sales, which account for three 
out of four sales. The most recent statistics from 
the Direct Selling Association indicate that 
almost 11 percent of direct sales are made over 
the Internet, up from 8 percent two years ear- 
lier. So mostsales are madethe customary way 
of making directsales and recruiting people into 
a downline. 

Beyond using e-mail, the Internet can be useful 
by having a Web site where you support your 
downline and attract buyers looking for your 
products and others looking for a business 
opportunity. You will need to use a domain name 
that does not duplicate or infringe upon the 
name of the network-marketing company. 

The Internet is used successfully by some 
people to attract a downline in still another way. 
Although junk e-mail may the way you think of 

first, it's not used by those who are most suc- 
cessful. Instead, they actively participate in 
online forums or discussion groups, usually 
related to the product they are selling, where 
they are helpful to others by answering ques- 
tions and offering advice that earns people's 
trust and interest. 

One less obvious benefit of network marketing 
is that you can learn about the skills needed to 
operate a business, such as selling, managing 
time, and keeping yourself motivated in the face 
of rejection. In this sense, network marketing 
can be a good training experience based on the 
help and strength of your upline. While such 
skills are primarily "offline" ones, with every 
passing year more and more of what we do 
involves connectivity to the web. 

You can find the current research on direct-sell- 
ing and network marketing at www.dsa . org. 
Network marketing has its share of critics. A 
comprehensive site is www. ml msurvivor. 


Part III: Avoiding Problems 

Part IV 

Making It Work: 
Moving Ahead 

The 5 th Wave By Rich Tennant 



UU^< wuv^\v«i«}^ I 

"It's your viife Hv. "Dinkey. £hatt I have her 
tatte a seat in the closet, or do you want to 
schedule a -meeting in the Kiichen £oy later 
this afternoon? " 

In this part . . . 

m^avrng an office in your home creates both opportu- 
¥ W nities and problems. While you may long to have an 
office in your home, your loved ones may not share your 
enthusiasm. In this part, we discuss the importance of 
having the right attitude in your business and coexisting 
peacefully with those who share your home with you. We 
wrap up this Part with a look at how to grow your business. 

Chapter 14 

Staying on Track with a Serious 
Business Attitude 

In This Chapter 

Having a serious business attitude 

Keeping your work life and personal life separate 

Avoiding interruptions and distractions 

Creating positive work routines 

Getting organized 

yl^any people talk about their dreams of starting and running their own 
www businesses, but relatively few actually do it — and even fewer start 
businesses that turn out to be successful for the long haul. What makes the 
difference between those who succeed and those who don't? In many cases, 
it's all about attitude. 

How important is it to be serious about your business? Incredibly important. 
Why? There are two main reasons, both of which involve perception, and 
they both have a way of becoming self-fulfilling prophecies: 

*<* If you're not serious about your business, you probably won't put 
your all into making it a success. You won't be able to imagine that your 
modest little enterprise will ever have the potential to provide you and 
your family with a livable wage or that it can provide you with an alterna- 
tive to the regular 9-to-5 job you may have faced your entire working life. 

*«* If you're not serious about your business, no one else will be either. 

Why should your potential clients and customers take your business seri- 
ously if you don't? The answer to that question is easy: They shouldn't. 
And if your potential clients and customers don't take your business seri- 
ously, you have no business at all. 

In this chapter, we examine exactly what having a serious business attitude 
is all about — and why it's so important. We also discuss how to keep your 
work life and personal life separate, at least enough to get some work done! 

261} Part IV: Makin 9 ll Work: Moving Ahead 

We assess two of the most common problems facing home-based business- 
people — interruptions and distractions — and provide you with a variety of 
tips to help you beat them. Finally, we consider the importance of developing 
regular work routines, as well as the whys and hows of getting organized. 

It Alt Begins With a Serious 
Business Attitude 


Most successful businesses are successful in part because the people who 
own and run them are serious about doing business. Employees and cus- 
tomers may have fun, but make no mistake about it: Businesses have prod- 
ucts and services to sell and money to make. If you don't sell your products 
and services, and you don't make money, you don't have a business — it's 
just that simple. 

Your home-based business is no different from any other business. Most likely, 
you originally chose to start it because you were looking for something that 
working for someone else couldn't provide. Maybe it was freedom, autonomy, 
control, flexibility, money, or any number of other reasons. A home-based 
business, though, is a business first and foremost, and if you hope to be suc- 
cessful (and we're sure you do), you have to treat it like a serious business. 

This means your business is not: 

U* A hobby 

«-** Something you do just every once in a while 

u* Merely a tax shelter 

«-** A get-rich-quick scheme 

*«* A lark 

It's fine to have fun in your business — in fact, you should — but don't forget 
that your home-based business can be your ticket for leaving the rat race 
behind once and for all. Many successful home-based business owners have 
done just that. You can, too. 

It's what's inside that counts 

Starting your own business can cause nervousness and trepidation. If you've 
always worked for someone else, the thought of working for yourself can truly 

Chapter 14: Staying on Track with a Serious Business Attitude 203 

feel like a step into the great unknown. And in many ways, you are braving an 
unknown world: Will customers buy your products? Will you be able to make 
enough money to support your family? Will you be able to get health insur- 
ance? What happens if a competitor tries to steal away all your business? 

Having a serious business attitude starts on the inside. It starts with being 
knowledgeable about your services and products, and having the confidence 
that comes with that knowledge. Above all, it starts with a decision: that your 
dream of starting your own home-based business is no longer going to be just 
a dream, but a reality. Here are some of the things that come from inside you 
that can make building a home-based business a successful proposition: 

*«* Have confidence. Confidence — or the lack thereof — can make all the 
difference in the world when starting and growing your own business. 
When you're confident, you feel as if you can overcome any hurdle that's 
put in your way. And you know what? You probably can! 

is* Keep a positive attitude. Most successful entrepreneurs tend to be opti- 
mistic about themselves, their businesses, and the future. They see the 
glass as half full rather than half empty. A positive attitude can take you 
far in this world, both in business and in your personal life. 

i<* Expect the best from yourself and others. Set your standards high, 
and refuse to settle for less. The quality of your products and services 
begins — and ends — with you. 

w* Care about your customers. Whom would you rather do business with: 
someone who really cares about you and who takes the time to show it 
or someone who doesn't? If you take care of your customers and clients, 
they'll take care of you. 

U* Make the decision. Plant your foot firmly on the other side of the fence, 
and make the decision once and for all to turn your home-based busi- 
ness dream into reality. Quit talking about it; just do it! 

Take the time to build your serious business attitude from the inside out. If 
you already have all the self-confidence and positive attitude in the world, 
that's great — you've got a big head start toward business success! 

If, however, you still have some way to go, don't be afraid to work into your 
business slowly, one step at a time. Instead of leaving your regular job to 
start your own business, consider starting your home-based business while 
still working your regular job. Not only will this take much of the pressure 
off you to create an immediately successful enterprise — boosting your self- 
confidence in the process — but it will also give you the time you need to 
really get to know your products and services and to network with potential 
customers and clients. 


Part IV: Making It Work: Moving Ahead 

Creating an identity 

One of the first things most home-based busi- 
nesspeople do is to order business cards and 
stationery for their new home-based busi- 
nesses. That raises a question: Should you 
develop a logo design to represent your busi- 
ness while you're at it? 

If you're serious about building your business 
and committing to itforthe long haul (and we're 
sure you are), you need to create an identity that 
will help your business stand out in the crowded 
marketplace. And although you may be able to 
create a logo yourself, it's probably a better idea 
to hire a professional graphic artist to develop 
a logo for your business. Your logo will be used 
for a variety of purposes, including business 
cards, stationery, your Web site, advertising and 
promotional materials, brochures, reports, and 

Your graphic artist may present you with a wide 
variety of options and alternatives. Remember 
that the logo design you select for your home- 
based business should be: 

v* Simple. A logo design should never be so 
complex that it becomes confusing. In the 
case of logos, simpler usually means better. 
Think McDonald's golden arches, AT&T's 
globe, or Nike's swoosh. 

i* Unique and recognizable. Take a lookatthe 
cover of this book. What do you see? The 

Dummies Man — the mascot in the 
Dummies Press logo — is at once unique 
and recognizable. After you've seen him on 
a ...For Dummies book, you'll always asso- 
ciate his face with this brand, no matter 
which book it is. 

V Compatible with your business's image. Is 

your business conservative, such as a man- 
agement consulting or investment firm? 
Then you want to have a conservative logo 
that reflects the rock-solid image you want 
your firm to project. But if your firm is 
dynamic, exciting, and takes chances, your 
logo should, too! 

Keep in mind that other things help create an 
identity for your business besides a logo: the 
way you answer your phone, the color and type 
of paper that you use in customer correspon- 
dence, the design of your Web site, the friend- 
liness with which you handle customer 
problems, even the message you leave on your 
answering machine or voice mail ... all build the 
image that people have of your business and, 
therefore, its identity in the marketplace. 

Take the time to step outside your business from 
time to time to experience what your customers 
and clients experience. Are you happy with 
what you see? If not, what can you do to 
improve your business's identity and image? 

What's outside counts, too 

Of course, though we all know you can't tell a book by its cover, that doesn't 
stop people from making judgments about you and your business based on 
what they see on the outside. People make superficial assessments all the 

Chapter 14: Staying on Track with a Serious Business Attitude £\) / 



time. Whether their ultimate judgments are right or wrong, these judgments 
can mean the difference between getting new customers or clients and losing 

So what's outside really does count. Here are some ways to make sure that 
what's outside (and easily seen) reflects what's inside (and not so easily seen): 

U* Create a top-notch Web presence. The days of being able to get away 
with an amateurish-looking, clunky site are gone. Invest some money in 
building a top-notch Web site that absolutely exudes quality and experi- 
ence. The good news is that many Web hosting services now offer inex- 
pensive and easy-to-use templates that instantly give your business a 
professional look. 

i>* Create a custom logo, stationery, business cards, and promotional 
materials. If it's good enough for a multibillion-dollar corporation, it's 
good enough for you. The money you invest in making your business 
look more professional will pay off many times over in the number and 
quality of clients that you attract. 

The quality of the paper and other materials you deliver to your client 
says a lot about the quality of your work and the importance you place 
on delivering a quality product. What does the paper you use say about 
you and your business? 

*«" Incorporate. Those three little letters — Inc. — say something about 
your business. They say that you're established, that you're serious, and 
that you're in it for the long haul. Not a bad impression to leave with 
your potential customers. (See Chapter 10 for more information on 
incorporating your business.) 

i** Dress for success. As a general rule, you should always dress one 
level higher than the client you're meeting with. If your client is 
dressed casually, you should have a jacket and tie (for men) or a dress 
(for women). If your client goes for jacket and tie, wear a suit. Of course, 
if you're at home — and there's no chance a client will be popping by 
unannounced — you can wear whatever makes you comfortable. 

w* Get a dedicated phone line. There's nothing that screams "unprofes- 
sional!" louder than a five-year-old answering a client's call. You'll make a 
much better impression by having a dedicated phone line for your busi- 
ness, hooked up to a dedicated answering machine or voice-mail system. 

Make sure that the message you project on the outside reflects the high level 
of quality and commitment to your customers that you hold so dear inside. 


Part IV: Making It Work: Moving Ahead 

Serious doesn't mean you can't do it your way 

Some of the most liberating things about having 
your own business are that you get to decide 
when and where you're going to work, what 
work you're going to do, and whom you're going 
to do it for. Here are some statistics on the dif- 
ferent approaches people working at home are 
taking to doing things their way: 

w Fewer than 10 percent work a traditional, 
9-to-5 schedule. 

v Eighty-one percent dress casually (6.5 per- 
cent don't wear anything at all!). 

k" Half don't wear shoes while they work. 

*<" Eleven percent wearformal business attire. 

*<" Sixty percent play music while working. 

Separating \lour Work from 
l/our Personal Life 

Although being closer to those you love (even if it's just your goldfish) is one 
of the big attractions to working at home, you will clearly have times when 
you have to draw a line between your home life and your work life. By taking 
the time to anticipate this requirement up front, you can make the transition 
to your own home-based business smoother — not just for you, but for your 
clients, customers, family, and friends as well. 

You can use a number of barriers to separate the business and personal sides 
of your life. Here are some of the most important ones for you to consider: 

v Use a separate room. Having a room apart from the hustle and bustle of 
your regular home life — one that is dedicated exclusively to your busi- 
ness — is the first step in making your home office into a real office. 

e* Set a work schedule. When you own your own business, you can work 
whenever you like. You may find it easier (and more productive), how- 
ever, to establish a regular work schedule. That way, those around you 
know when it's okay to interrupt you and when it's clearly not okay. 

f" Have a separate entrance. Should your clients really have to pass 
through a gauntlet of toys, cereal bowls, and cranky children (or 
spouses!) to get to your office? A separate entrance helps keep your 

Chapter 14: Staying on Track with a Serious Business Attitude £\)y 



work life separate from your home life. Many home-based business- 
people may not currently have this luxury, but it's something to think 
about if you have the opportunity to build, buy, or rent a new house in 
the future. If not, you always have the option of meeting your clients at a 
convenient off-site location such as your local Starbucks or favorite 
lunch spot. 

«-" Get help! Instead of trying to juggle your obligations at home while 
trying to keep up with your work obligations, consider getting the help 
you need to allow you to focus exclusively on your work when you need 
to do just that. You could, for example, hire a housekeeper to clean your 
home and relieve you of that burden. Or you could hire a babysitter to 
come into your home to watch your young children. Or you may be able 
to get your spouse or a relative or friend to help cover for you. The main 
thing to keep in mind is that you do have alternatives available to you if 
you feel overwhelmed. 

Keep in mind that the degree to which you separate your work and personal 
lives is totally up to you. The good news is that you can be far more flexible 
than you ever could be working for someone else. You can strengthen the sepa- 
ration when you're under the gun at work and loosen up when things are a bit 
more relaxed. In this way, you really can enjoy the best of both worlds, where 
you're able to do the work you love in the place you most want to be — your 
own home. 

Getting off the preschool bus route 

Q: Once when my neighbor was in a jam, I 
offered to pick up her son from preschool. She 
has since asked me to repeat this favor several 
times. How can I explain to her, without damag- 
ing our friendly relationship, that just because 
I'm working at home doesn't mean I'm network- 
ing as hard as her corporate acquaintances? 

A: You don't need to explain. The way to let her 
know that you're working as hard as corporate 
acquaintances is to tell her that even though 
you'd like to help, you can't pick up her son 
because you're working. Be warm. Be sincere. 

But be clear and definite that your business is 
such now that you can no longer take time off 
during working hours. She will probably be dis- 
appointed, as she has come to rely on you. But 
if you want her to take you off her emergency 
help list, you may need to reinforce your mes- 
sage several times, repeating that you're sorry 
and wish you could help, but because of your 
work, you simply can't. She may call you several 
more times, just to be sure. But if you continue 
to be clearthat you'd like to help but can't, she'll 
eventuallygetthe idea and find new resources. 

2 TO Part IV: Making It Work: Moving Ahead 

Avoiding Interruptions and distractions 

Every job has its interruptions and distractions. When you're in a regular 
office, you may have a coworker who drops in on you regularly to unload his 
or her latest thoughts about your company's management team. Or you may 
have a boss who is so busy assigning you new tasks that you never seem to 
be able to get around to the old ones. 

Without a doubt, however, working at home offers its own unique set of inter- 
ruptions and distractions. From television soap operas to rambunctious kids 
to your neighbor's ear-splitting leaf blower — almost an unlimited number of 
interruptions and distractions are waiting to take you away from your work. 
Your job is to find ways to ignore them or to avoid them altogether. 

Dealing With interruptions 

You can't always prevent interruptions, but you can do things to remove 
them after they occur and then get back on track and back to work. Here are 
some ways to deal with interruptions: 

*«" Focus on your goals and priorities. Although you may not be able to 
keep from being thrown off track when an interruption occurs, you 
should be able to quickly return your focus to the goals and priorities 
at hand. How? By resolving the interruption as quickly as possible and 
then refocusing your full attention on your work. 

l** Be kind, but firm. The wrong way to deal with interruptions is to get 
mad at the person who is interrupting you. The right way is to firmly 
explain, in a loving and supportive way, that the interruptions will have 
to stop while you're working. Kids especially need this kind of caring 
treatment. They probably aren't aware that they're interrupting your 
work; they simply want a chance to spend some time with you. 

is* Take action. Don't try to simply ignore interruptions — chances are 
they won't go away, no matter how little attention you pay them. In fact, 
by not taking action, you're sending the person doing the interrupting 
the message that it's okay to interrupt you — or even that you actually 
welcome it — all the while building resentment within yourself. 

w* Stay loose. No matter what you do, someone, somewhere, will interrupt 
you. The key is to stay loose and not let the interruption totally destroy 
your ability to jump right back onto task. Learn to be flexible, and find 
ways to get back on task quickly. 

With a bit of practice, you'll soon be able to deal with your interruptions like 
a pro, and you'll find that you can take charge of them instead of letting them 
take charge of you. 

Chapter 14: Staying on Track with a Serious Business Attitude 2/1 


Is TV the problem or the symptom? 

Q: I am often tempted to watch TV during work 
hours. At first, I seta rule that I would watch for 
only one hour during my lunch break; however, 
I sometimes have gotten sucked into a show 
and watched longer than I should have. Then I 
rationalize by saying I'll work longer hours. 
Sometimes I'll have the TV on in the background 
and then press the mute button when I get an 
outside call. Do you have any suggestions on 
how I can breakthis bad habit? 

A: Take the television out of your office. 
Watching TV is one of the top five home-office 
bad habits. Get a VCR (or, even better, a digital 
video recorder such as Tlvo) if you don't have 
one, and tape your favorite daytime shows. If 
you don't like a show well enough to watch it 
after work hours, something must be missing 
from your workday. Find out what it is, and 
replace your bad habit with new, more appeal- 
ing habits that serve you better. For example: 

w Are you bored with your work? What has 
happened that watching daytime TV is more 
interesting to you than the work you do? 
There will always be a few tasks in any busi- 
ness that are so mindless, you may as well 
be watching TV while you're doing them, but 
you're in the wrong business if that's how 

you feel about most of your workday. Has 
your business lost its magic — or never had 
it? How could you make what you do more 
exciting and challenging? What attracted 
you to go out on your own in the first place? 
What do you like best about your work? 
What could you do more of in your work 
that would make you forget all about watch- 
ing TV? 

Do you miss the social interaction of an 
office setting? Arrange to have more con- 
tact with people you enjoy. Call up a col- 
league. Get active in a local business or 
professional organization. Join an Internet 
newsgroup. Sign up for a class or ongoing 
social activity you enjoy. 

Are you stressed out and working too hard? 

Give yourself something else to look for- 
ward to, such as planning an exciting 
evening for when you've finished working. 
Or replace your bad habit with a better one. 
Many home-business owners, for example, 
enjoy listening to talk radio or music while 
they work. Others walk in nature over the 
lunch hour or take an exercise break like 
running, biking, orta king an aerobics class. 
What would you enjoy most? 

Dealing With distractions 

Interruptions generally occur when people take you away from your work — 
by walking into your office and demanding your immediate attention or call- 
ing you on the phone and talking your ear off for half an hour. Distractions 
are often more subtle. For home-based businesspeople, common distractions 
include the Internet, a favorite soap opera broadcast for an hour every day, 
or a refrigerator down the hall that's full of goodies. 

2 /2 P art IV: Making It Work: Moving Ahead 

Here are some ways for dealing with distractions: 

i* Remove the sources of distraction. Is that television on your file cabinet 
begging you to turn it on? Does that America Online chat room have 
your name on it? Are you spending more time looking through your mag- 
azines than producing billable work? One of the best ways to avoid dis- 
tractions is to remove their source. Turn them off, throw them out, or 
move them to another room. If the Internet or e-mail is a problem, set 
definite times — perhaps during lunch or maybe no more than five min- 
utes every hour — during which you allow yourself to spend time on 
those activities. 

*«" Avoid procrastination. Putting work off until later, sometimes much 
later, is a powerful enemy of the home-based businessperson. And it's an 
enemy that you must defeat in the short run if you hope to be successful 
in the long run. 

u* Reward yourself for achieving your goals. Don't forget to give yourself 
some sort of reward for accomplishing a significant task or achieving an 
important milestone. Take a day off. Meet your significant other for a 
long lunch. Go shopping. Go for a bike ride with your kids. Whatever 
makes you feel good. Not only will these rewards make you feel better, 
but they'll also motivate you to stay focused on your work while tuning 
out distractions. 

v* Schedule (and take!) regular breaks. Do you find yourself fidgeting or 
unable to stay focused on your work? Take a short break from your 
work. Forward your calls to voice mail, and get out of your office. You 
can relax and take your mind on a brief vacation by going for a brisk 
walk outside or enjoying a cup of coffee or tea on your back porch. And 
don't leave taking breaks to chance; schedule regular breaks into your 
daily work plan. 

You can control the effect of distractions on you and your business by taking 
action to remove their source and by providing sufficient structure and moti- 
vation in your work. Don't let distractions get in the way of your doing the 
best job you can — and building the best business you can. 


The last resort 

Sometimes, despite all your efforts to deal with interruptions and distractions, 
they may get the best of you. Peter, for example, is usually able to keep his 
work separate from his very active kids, but occasionally, the thin line that 
divides them is broken. And more than once, Peter has thought about how 
nice it would be to rent an office in a small building down in the village — a 
place that would be a guaranteed refuge from the demands of three busy kids. 

Chapter 14: Staying on Track with a Serious Business Attitude ^? ij 

Resisting the call of the fridge 

Q: I'm embarrassed to saythat I've gained some 
weight since I began working at home. I think 
part of the problem is that I eatoutof stress, and 
of course, the refrigerator is now just a few 
steps away from my desk. Do you have any sug- 
gestions for how I can moderate my eating 

A: You're not the only one to gain weight in the 
comforts of working from home. But although 
you have more access to excess at home, you 
also have more control over what you do and 
how you do it. 

The best way to beat this problem is to find new 
ways to de-stress: Take a walk, call a friend, or 
lean back and listen quietly to some of your 
favorite music. Thinking of something, anything 
otherthan food will help you relax. Itmaytake a 
while to find what will satisfy you more than 
food, but on the way to the kitchen, take a deep 
breath, and think of what else you may enjoy at 
that particular moment. 

Also, stock your refrigerator and kitchen cabi- 
nets with lots of low-calorie, low-fat, healthy- 
but-filling foods that don't make you wantto eat 
until the bag is empty, the way that chips and 
cookies do. Apples or rice cakes are good 
examples. We find that eating small, balanced 
snacks can also help keep snacking within 
bounds. For example, you might have half an 
apple with an ounce of cheese and a couple of 
almonds or a teaspoon of almond butter. 
Alternatively, you can remove the incentive to 
visit the kitchen between meals by keeping the 
beverages of your choice in your office. 
Consider picking up one of those mini shelf-top 
refrigerators if you like cold drinks. 

Be aware, too, that evidence is beginning to 
show that one's blood type makes some foods 
fattening for one person that are not fattening 
for someone else. If you'd like to check this out, 
see the book Eat Right for Your Type, by Dr. Peter 
J. D'Adamo, or check out his Web site at 
www.dadamo .com. Following his guidelines, if 
you do snack, you shouldn't put on pounds. 

But that thought passes quickly (when he remembers just how much he would 
have to pay each month in rent), and Peter again remembers all the advantages 
of having an office in his home. When interruptions and distractions get the 
best of you, you'll certainly do whatever you can to resolve them. But what 
happens when you can't resolve your interruptions and distractions and they 
actually begin to threaten your ability to get any work done at all? 

It may be time to take drastic action. Here are a number of different ways that 
you can really shake things up and get back on track: 

**" Change your schedule. Work when your chances of being interrupted or 

I distracted are minimized. If you can't seem to avoid being distracted by 
your noisy roommates who party late into the night, do your work in the 
morning and afternoon — well before the partying is set to begin. 

2 74 Part IV: Makin 9 lf Work: Moving Ahead 


v* Learn to live with it. Of course, this is easier said than done, but per- 
haps you can learn to live with the distractions — accepting them, but 
tuning them out and ultimately ignoring them. 

*«* Move your work. Sometimes a temporary change of scenery can do 
wonders for your concentration, especially when the source of distrac- 
tion or interruption is a short-term one. Try out an outside deck or even 
a local cafe, library, or park. With a cell phone and a laptop computer, 
you can take your work wherever you want, most any time you want. 

*«* Move your office. If you have a long-term, ongoing problem with distrac- 
tions and interruptions, and it doesn't appear that you can solve the 
problem with a temporary change of scenery, consider moving your 
office altogether. At a minimum, choose a different room or other loca- 
tion within your home. In a worst-case scenario, you may need to move 
your office out of your home and into a regular, leased office space. 

Don't let interruptions and distractions get in the way of your success. If 
you're serious about your home-based business and about the potential for 
succeeding at it (and we're sure you are!), take action before things get so 
bad that your business suffers irreparable harm. 

Routines Rule 

Routines are a part of life. They help you stay focused on the things that are 
most important. They provide the structure and continuity that you — and 
your clients and customers — rely on to do business efficiently and effec- 
tively. Routines are a good thing. 

Of course, some routines are better than others. Here are some tips for estab- 
lishing the right kinds of routines — the kinds that can bring you success 
rather than failure: 

u* Establish a regular work schedule. Maintain regular business hours just 
as you would working for a regular business. It doesn't matter if you 
decide to work from 9 to 5 or from 5 to 9, so long as your schedule meets 
your needs and the needs of your clients and customers. As the owner 
of your own business, you get to decide! 

**" Take plenty of short breaks. When you work in a regular business, you 
have lots of opportunities to take breaks from your routine. A phone call 
from a friend, a visit from a vendor, a lunch break with your associates, or 
a quick walk to a nearby deli — all offer a break from the routine. When 
you work at home, such breaks are much fewer and farther between, and 
you have to make a point of taking them. 

Chapter 14: Staying on Track with a Serious Business Attitude ^? ( O 


Missing the hustle and bustle 

Q: I know home-based business owners often 
complain about noise distracting them, but my 
problem is the opposite: Sometimes it gets so 
quiet in my home office that it unsettles me. Do 
you have any suggestions for creating a little bit 
of good old-fashioned "office noise"? 

A: You're not the only one who doesn't work well 
in silence. This is undoubtedly why home-based 
business owners avidly listen to talk radio. Of 
course, background music helps many people 
stay productive, and rather than being a dis- 
traction, it can energize your brain and your 
work. We sometimes like to have Steven 
Halpern's album Productivity playing in the 
background while we work. It's available on 
both tape and CD (call 800-909-0707 or visit his 
Web site at www . i nnerpeacemusi c . com). 
We set our stereo tape system on continuous 
play and get to work. Alternatively, you can 
listen to radio stations, music or talk, over the 
Internet. Check out the amazing array of listen- 
ing options available to you at Launch 
(1 aunch 

We've also met people who spend part of their 
day working over lunch at a restaurant or cof- 
feehouse. Others preferto work on their corpo- 
rate client's premises several days a week. 
When graphic designer Nancy Rabbit couldn't 
stand the sound of silence, she decided to 
expand her business by bringing several 
coworkers into her home. 

We like the sound of water, so we keep a small 
fountain gurgling. While once fairly expensive, 
these are now quite reasonably priced. 

As for "office noise," if that's what you miss, you 
can most likely find a client or colleague who 
will let you tape 10 or 15 minutes of office 
sounds on an endless-loop tape that you can 
then play in the background while your work. Or 
if you like the idea of creating your own sound- 
track, you can find collections of sound clips on 
software. Try ClickArt by Broderbund (call 
800-395-0277 or visit the Web site at www. 
broderbund . com), or have someone create 
one for you. 

w* Schedule appointments for yourself, friends, and family. The everyday 
events that take place in a typical business — home-based or not — can 
quickly fill up your schedule. While you may have planned to get out for 
a relaxing lunch with friends, go to the gym to work out, or attend your 
daughter's awards ceremony, you may find yourself glued to the phone 
or computer instead. Instead of "trying" to do the things you want to 
do, schedule firm appointments to do these things instead. Just as you 
would schedule an appointment to meet with a client, schedule an 
appointment to meet with your spouse over lunch or go for a walk. 

«-** Start your workday the same way every day. Create a routine around 
starting your workday For example, you may make a pot of coffee, check 
your e-mail and voice-mail messages, read 77;e Wall Street Journal, and 
then begin making sales calls. You decide what to do in your routine; the 
point is to have a routine and to follow it. 

2 76 Part IV: Making It Work: Moving Ahead 

i^ End your workday the same way every day. So many businesspeople 
complain about not having enough time to sit down and really think 
ahead and to plan, but few do anything about it. Here's your chance to 
do just that. At the end of your workday, take 15 minutes to go over what 
happened that day and then review your priorities and schedules for the 
next day. File away any papers that need filing, and straighten up your 
desk so that you come back to an organized workspace on your next day 
of work. 

If you feel that your work life — and maybe even your personal life — is 
chaotic and out of control, perhaps you should step back for a moment and 
take a close look at how you run your life. Using the preceding list, create 
routines in your life that you can rely on day after day, week after week. 

An Organized Home Office 
1$ a Happy Home Office 

Some people can have stacks and stacks of seemingly random pieces of 
paper all over their desks and around their offices and still be right on top of 
things. For many people, however, this would be a recipe for disaster. People 
are organizational creatures who are much more effective when work and 
tools are organized and easy to access. 

Don't underestimate the power of organization. Being organized, efficient, 
and effective can mean the difference between being successful in your 
home-based business and being less than successful — perhaps far less. The 
following sections show you how. 

Manaqinq your office 

So where should you start in your efforts to get your work life organized? We 
start with the one place where you probably spend more time while you're 
working than any other place: your home office! 

*«* Clean up your desk. Yikes! What's that mess on your desk? The busier 
you get, the less time you have to clean up the paper, the old coffee 
cups, the pencils and pens, the Post-its, the cell phone, the sunglasses, 
and all the other things that accumulate on your desk. The trouble with 
that is that the more stuff that accumulates, the harder it is for you to do 

Chapter 14: Staying on Track with a Serious Business Attitude ^ / / 

your job. Not only do you have less space in which to work, but things 
also mysteriously begin to disappear. That phone number for a prospec- 
tive client whom you need to call in a few minutes — gone. That report 
you just saw a few minutes ago — where did it go? Begin your office 
organizing efforts with the place that you spend most of your working 
hours: your desk. After you have your desk under control, you can move 
on to other areas. 

*<* Clean up your office. After your desk is a model of organization, turn 
your attention to the rest of your office. What's that pile of paper in the 
corner? File it or pitch it! And those boxes stacked over in the other 
corner? How about moving them into your basement or garage? Or 
straight into the recycling bin? An organized office is so much easier to 
get around in, and you have far less chance of losing something impor- 
tant in your daily shuffle. 

v* Revisit your office layout. After you've had a chance to get settled into 
your newly cleaned-up office, take some time to assess whether it's really 
set up as effectively as it could be. Is the file cabinet in a convenient 
place? How about your fax machine or your paper supply? Periodically 
revisit your office layout to make sure it's working for you, and don't be 
afraid to make adjustments as you need to. 

u* Buy an appointment calendar, daily planner, or electronic organizer, 

and use it. Organizers and planners — whether electronic or paper 
based — can be effective tools for keeping your life organized. It's not 
important what kind of organizer you use; the best organizer is the one 
that you use. 

«-** Schedule regular office-organizing sessions. Avoid the temptation to 
organize your office once and then forget about it. If you do that, you'll 
soon find yourself up to your ears in paperwork, products, faxes, and 
whatever else wanders through your door. Make a regular habit of keep- 
ing your office organized and clean. 

*-" Work as paperlessly as possible. Do you really need to print out a copy 
of every single document that you create on your computer or every 
Web page that you visit? Probably not. If you're like us, you've grown up 
with lots of paper in your life, and you may be comforted by having lots 
of paper all around you. We believe that most of the documents you 
create can be stored more efficiently on your computer. And if you use 
your computer as a fax machine, you can store all your incoming faxes 
on your computer, too. 

v* Do it now! You've read about what to do to organize and manage your 
office. You know what you need to do. Now you just have to do it! 

2 (O P art '^ : Making It Work: Moving Ahead 

Managing qow time 

You still only get 24 hours in a day; no one has yet been able to figure out 
how to make any more than that (if they do, we'll be first in line for our 
share). Given that you have a finite number of hours in which to get your 
work done, the secret to getting the most out of each and every workday is 
to manage your time. 

Time management is a topic familiar to most in business. Done right, time 
management can indeed be an effective technique for focusing on what really 
needs to be done while removing the clutter and distractions that may get in 
the way of achieving your goals. 

Here are some tips for managing your time: 

*<* Get organized! There's nothing that slows you down faster than having 
to wade through a messy desk or office searching for a missing address, 
phone number, or report. Take time to get and stay organized. After you 
do, the amount of time you set aside to perform ongoing maintenance 
will be substantially reduced. (See the "Managing your office" section, 
earlier in this chapter.) 

u* Review your priorities at the beginning of the day. Each workday, 
before you do anything else (okay, go ahead and grab a cup of coffee 
first, if you like), review your priorities for the day to see what you need 
to work on right away. 

*<* Do your first priority first, and drop your last priority. Instead of jump- 
ing to an easy, low-priority item on your list, always take on your first 
priority first. And instead of letting your lowest-priority items languish 
at the very bottom of your list — never to be acted on — drop the 
lowest one from your list. Chances are you'll never miss it. (See the 
"What's a priority and what's not?" section, later in this chapter, for 
more tips on establishing priorities.) 

*<* Lose your junk mail (and junk e-mail). Junk mail (and junk e-mail, also 
known as spam) is an incredible time-waster. Whenever you find it in 
your mailbox, don't pass Go, don't collect $200 — simply pitch it into 
the trash can or recycling bin. And as for junk e-mail, use your e-mail 
program to filter out messages from junk senders before you even see 
them. Out of sight, out of mind. One more thing: Be careful about giving 
your e-mail address to people and Web-site operators who may just turn 
around and sell it to the highest bidder. You may want to create a free 
Web-based e-mail address for just such use while keeping your real 
address more private. 

Chapter 14: Staying on Track with a Serious Business Attitude ^? / y 

*<* Get a faster computer. How much time have you spent watching that 
little hourglass mouse pointer while the machine crunches a big chunk 
of information or waiting for your ancient modem to download a Web 
page from the Internet? If you still have a slow computer and modem, all 
the time you spend waiting could easily add up to several hours every 
month. This is time down the drain. Do yourself (and your customers 
and clients) a favor, and get a faster computer and modem. Buy the 
fastest computer you can afford, and be sure to get plenty of RAM while 
you're at it — this will ensure that your computer can work at its fastest. 
And if DSL or cable modems are available in your location, spend the 
extra money to sign up. You'll more than make up the extra cost in 
greatly improved productivity and effectiveness. 

For more detailed information on time management and ways to take advan- 
tage of every minute of every day, check out Time Management For Dummies, 
by Jeffrey Mayer (Wiley). 


What's a priority and u/hat's not} 

Priorities can — and should — have a significant impact on what work you 
decide to do and when you decide to do it. Most people think they know 
what's most important in their businesses, but many don't follow through 
on this knowledge and instead let trivial events and distractions rule their 

Here are two ways to separate your real priorities from the wannabes. Ask 

i* What's the impact to your firm's bottom line? Everyone has reasons for 
being in business for themselves, but one of the main reasons for creat- 
ing a business is to make money, pure and simple. Sure, you want to do 
fulfilling work that taps your creativity, but if it doesn't pay the bills, you 
won't be doing it for long. What kind of impact will the action have on 
your bottom line — will it reduce your expenses or increase your rev- 
enues? The greater the impact on improving your bottom line — your 
profitability — the higher it should rate on your list of priorities. If an 
action has little or no impact on your bottom line, give higher priority to 
other actions that do have such an impact. 

*«* Is the action in response to a client emergency? Another reason that 
many people start their own businesses is to solve their client's prob- 
lems and to provide them with solutions. Because clients in many ways 
are the heart and soul of any business, solving their problems is clearly 
a priority. And when your clients have an emergency, the actions you 
need to take to solve them should be top priorities for you. 

280 P art '^ : Making It Work: Moving Ahead 


It all comes down to doing first things first: consciously identifying a busi- 
ness's highest priority actions and then taking a single-minded approach to 
tackling them. This may mean ignoring the calls of a salesperson, forwarding 
your phone to voice mail for a day, or even throwing your priority list into a 
drawer and working only on your number-one priority until it's done. The 
good news is that prioritizing gets easier with experience. 

Don't forget, you hold the key It's up to you to decide what's most important 
to your business and then to act on it. You're the boss now; no one else is 
going to decide for you. 

Chapter 15 

Coexisting with Kids, Relatives, 
Neighbors, and Pets 

In This Chapter 

Understanding what to expect 
Preserving time for a personal life 
Working with a spouse or significant other 

■ M ^ould it surprise you to learn that many of today's most successful 
▼ ▼ companies started out as home-based businesses? It's true. Global 
computer and electronics powerhouse Hewlett-Packard was started by 
cofounders Bill Hewlett and Dave Packard in a garage behind Dave's house 
in Palo Alto, California. Apple Computer — which today pulls down annual 
revenues in excess of $6 billion — was cofounded by Steve Jobs and Steven 
Wozniak in Jobs's parents' garage. 

The number of home-based businesses is growing. In 1997, Dunn and 
Bradstreet found that 38 percent of all businesses were based at home. By 
2002, the percentage grew to 53 percent, the same percentage given out by 
the Small Business Administration. The Gallup Organization has found that 7 
of every 10 (71 percent) businesses started from scratch were based in the 
home. Who knows — maybe your home-based business will be the next big 
business success story. 

Of course, nobody said having your own business at home was easy. Indeed, 
when you run a business at home, you face a variety of challenges rarely 
encountered by people who work in a regular office. 

When you're at home, you're accessible. The boundaries that would typically 
separate your work life from your personal life in a regular job don't exist. 
Although one of the greatest rewards that home-based business owners get 
from working at home is being closer to family and friends, this closeness can 
also be a huge liability if it isn't controlled. It can be a big enough challenge 

282 P art '^: Making It Work: Moving Ahead 

keeping your focus on your work instead of on the many distractions all 
around your home office. Add to that the stress of juggling a house full of 
active kids and visiting friends, neighbors, and relatives. Believe us — it can 
be a real challenge. 

In this chapter, we take a look at the issue of coexisting peacefully with those 
likely to be in or around your home-based business. We give you some idea of 
what to expect and suggest solutions to common dilemmas. We discuss the 
importance of setting aside time for yourself. Finally, we take a close look at 
one of the most fulfilling ways to work at home: working with a spouse or sig- 
nificant other. 

Some home-based business owners find that they miss not having an office 
full of coworkers swirling around them every minute of the workday. Others 
find that it's not easy keeping their personal lives, kids, and significant others 
separate from their business lives when they need to. (What do you do when 
you're with an important client on the phone, and you hear a loud knock on 
your front door — or your 4-year-old screaming in the backyard?) And some 
have no difficulty at all making the transition to a home-based business; in 
fact, they soon realize that their newfound freedom and the control they now 
wield over their work and personal lives are things that they should have 
made happen sooner. 

If there's anything we have learned as home-based business owners our- 
selves, and from the hundreds of home-based business owners we've met 
and interviewed over the years, it's this: You can expect the unexpected! 

What to Expect from \lour Kids 

If you have kids, you know there's nothing they like more than attention, and 
the less they get, the more they want. And you know what? They really deserve 
the attention they seek. It's natural that they want to spend time with you, to 
play and experience the reassuring security of knowing that you're there. The 
problem is that kids never really seem to get enough attention, and you do have 
to work every once in a while if you hope to make a go of your new enterprise. 

If you have kids and decide to start a home-based business, inevitably you'll 
have competition between the time that you need to devote to your business 
to make it a success and the demands of your children. The decisions you 
make early on in dealing with this natural conflict can have a dramatic impact 
both on the ultimate success of your business and on your relationship with 
your children. 

Chapter 15: Coexisting with Kids, Relatives, Neighbors, and Pets 28 J 

Finding good child care 

Many owners of home-based businesses find 
that the best way to get quality work done while 
ensuring their children are well cared for is the 
same way many regular workers and employ- 
ees already use: child care outside the home. 
You won't find a shortage of child-care 
providers, but you may find a shortage of good 
ones. So how do you know if the child-care 
provider you've found is good or not? Here are 
five steps for choosing a good child-care 
provider, adapted from the National Association 
of Child Care Resource and Referral Agencies 
(NACCRRA) Web site atwww.naccrra .net: 

w Look. Begin by visiting several child-care 
homes or centers. On each visit, think about 
your first impression, but don't stop there. 
Does it look safe for your child? Do the 
caregivers enjoy talking and playing with 
children? Do theytalk with each child atthe 
child's eye level? Are plenty of toys and 
learning materials within a child's reach? 
Always visit a home or center more than 
once, and continue to come back and 
check it out. Unannounced visits may give 
you a more candid view of what's really 
going on at the home or center than if you 
call ahead or announce your visit ahead of 

v* Listen. What does the child-care setting 
sound like? Do the children sound happy 
and involved? What about the teachers' 
voices? Do they seem cheerful and patient? 
A place that's too quiet may mean not 
enough activity; too noisy may mean a lack 
of control. If you have the opportunity to 
meet other parents during your visit, ask 
about their own experiences, and listen 
closely to what they have to say. 

j-" Count. Count the number of children in 
the group and then count the number of 
staff members caring for them. The fewer 

children per adult, the more attention your 
child will get(and, therefore, the greaterthe 
opportunity for meaningful play and learn- 
ing). A small number of children per adult is 
particularly important for babies and 
younger children. Older children are natu- 
rally more independent and self-directed 
but still benefit from interaction with care 

*<" Ask. It's important that the adults who care 
for your children have the knowledge and 
experience to give them the attention they 
need. Ask about the backgrounds and expe- 
rience of all staff: the program director, 
caregivers, teachers, and any other adults 
who will have contact with your child in the 
home or center. Find out about the special 
training that each one has and whetherthe 
program is accredited by the National 
Association for the Education of Young 
Children (NAEYC) or the National Associa- 
tion for Family Child Care (NAFCC). Quality 
care providers and teachers will be happy 
to have you ask these questions. At a mini- 
mum, your care providers should have Red 
Cross training in first aid and CPR in the 
event of an accident or medical emergency. 

*<" Be informed. Find out more a bout efforts in 
your community to improve the quality of 
child care. Is your caregiver involved in 
these activities? How can you get involved? 
Does your community require child-care 
providers to be licensed, and are certain 
minimum standards required to be main- 
tained? If so, is your provider licensed, and 
are the standards adhered to? Be knowl- 
edgeable about legal requirements for 
caregivers in your community, and ensure 
that the people to whom you entrust your 
children are following the rules. 

2ou Part IV: Making It Work: Moving Ahead 


Kids do eventually grow up, and as you may be surprised to find out, you will 
someday be working away for hours at a time without interruption (an event 
that Peter can only dream about right now). Until that day arrives, however, 
try these suggestions: 

is* Keep them busy. If you're going to let your kids hang out with you in 
the office, set them up with things to do: an easel for painting, lots of 
crayons, paper, glue, scissors, or whatever else keeps them busy and 
creative. Here's a tip, though: Make sure that whatever you give them to 
keep them busy does not require your constant intervention or atten- 
tion. Avoid anything that may result in a big, sloppy mess. 

*<* Involve them in simple work tasks. Nothing is more boring for most 
adults than folding letters or brochures and stuffing and stamping 
envelopes. Guess what? Your kids probably won't find those things 
boring at all. Not only will they enjoy helping you, but they will also feel 
that they are doing something important and worthwhile. And, of 
course, they are. 

is* Hire a nanny or sitter. If you can't (or don't want to) juggle your kids 
and work simultaneously, by all means hire a nanny or a sitter to come 
keep your children occupied and out of your hair. You can have the best 
of both worlds: working at home while still having your kids nearby and 

v* Work around their schedule. Because you're the boss, you get to 
decide when you'll report to work (that alone is why many people long 
to start their own business). Why not set aside a certain time each day 
to take your kids to play in a park, go to a library, ride bikes, or simply 
go for a walk? If you want to stay accessible to your clients, just bring 
your mobile phone along. 

v* Keep your office your office. Although many people integrate their 
offices throughout their home, we believe your office should be your 
office. It should be the one place that, when you close the door, you're 
removed from the day-to-day distractions of friends and family. A closed 
door means others, including children, need to respect your privacy, 
peace, and quiet. You can decide to make your office off limits to your 
kids — and you may need to, depending on your particular situation. 
Just be sure your kids know that you're available in case of emergency, 
which includes emotional traumas when they're in dire need of a shoul- 
der to cry on and a big hug! 

Kids and home-based businesses aren't necessarily mutually exclusive. 
Coauthor Peter has proved this with three young, busy kids of his own. 
Involving your kids takes a bit of extra work and a lot of flexibility, but if 
you're really motivated, you really can have the best of both worlds. 

Chapter 15: Coexisting with Kids, Relatives, Neighbors, and Pets 283 

What to Expect from Relatives, 
Friends, and Neighbors 


As much as you think they should understand your new work status, chances 
are many of your relatives, friends, and neighbors will never really get it. 
Because you're at home all day — and how can you be at work if you're at 
home? — they may decide you're able to talk on the phone for hours on end, 
run errands, pick up their kids at school, or even babysit. Not only that, they 
may start bugging you about getting a "real" job — meaning one in an office 
building with a receptionist. 

You can head off a lot of these misconceptions and problems by taking the 
following steps, and the sooner, the better: 

f" Send out an announcement. Create a postcard or e-mail message 
announcing your new business, and send it out to all your relatives, 
friends, neighbors, and business contacts. Include your business 
address, phone and fax numbers, Web-site URL, and e-mail address. 
This will go a long way in making your business seem more real — both 
for you and for your friends, relatives, neighbors, and clients. 

w* Establish regular hours of business. By establishing regular hours of 
business, you draw a line that tells others when you're available for 
socializing and when you aren't — just as the line is automatically drawn 
for those who work a regular job in a regular office. Not only does this 
help reinforce your own self-discipline, but it also sends a clear message 
spelling out exactly when you are available and when you're not. 

t^* Be firm, but polite. Sure, your relatives, friends, and neighbors may 
want to pop in any time they like or to ask you to do favors while they 
are at work. Tell them firmly, but politely, that you won't be available 
while you're at work; you have to take care of your customers and 
clients first. 

u* Hire them! What's the old saying? If you can't beat them, join them! In 
this case, however, they can join you. You may find that hiring relatives, 
friends, and neighbors to help you in your business is a good way to 
make the time you spend with them more productive while enabling 
your business to grow and building stronger and deeper relationships — 
all at the same time. 

Just as it will take some time for you to transition into the new culture and 
work habits that go along with owning a home-based business, so, too, will it 
take time for your relatives, friends, and neighbors to adjust to the change. It 
may take them longer, in fact, than it takes you. Throughout this transition, be 
firm, but be considerate of their feelings. Give them time; they'll come around. 


Part IV: Making It Work: Moving Ahead 

What to Expect When Working u/ith Pets 

Pets can be great company for the home-based businessperson. Whether you 
have a dog or a cat — or some other fuzzy furry or slinky little creature 
(Peter's pet ball python, Poki, has been his constant companion in his home 
office for the past ten years) — you never have to worry about your pet gos- 
siping behind your back, and you can be sure that his or her loyalty will be 
absolute and unquestioning. Pets can, however, be a problem for your home- 
based business. If your dog likes to bark at the most inopportune times, or 
if your cat enjoys nothing better than to jump onto your head while you're 
making phone calls to clients, you have to take action. 

Here are a few tips for ensuring that your pets and your business can coexist 

«-** Get a mellow pet to begin with. Although you can never be sure what 
kind of pet you'll end up with when you get one that's young, you can 
be pretty sure what kind of pet you'll end up with if you get one that's 
already fully grown. Visit your local animal shelter, pound, or rescue 
center to find a pet that meets your needs. Low-maintenance pets such 
as fish, birds, reptiles, and large spiders and insects make perfect office 

*<* Get an outside versus an inside pet. If the idea of a dog or cat hanging 
out with you all day doesn't appeal to you, get a pet that likes to spend 
most of its days outside your home, rather than inside. Just be sure your 
outside pet doesn't spend all day barking or scratching your door to be 
let back in the house. 

v* Have your pet properly trained. If you do decide to get a puppy, train it 
properly early in its life. Although it's really not impossible to teach old 
dogs new tricks, it's certainly easier when they are young. A well-trained 
pet will make your life at home — and in your home-based business — 
much more enjoyable. 

«-** Give lots of praise. Most pets want nothing more in the world than 
to please you, and they respond eagerly to positive reinforcement. 
Whenever your pets do what you want them to do, give them lots of 
praise and affection. 

V Be patient. If things aren't going the way you hoped as quickly as you 
like, be patient, and don't give up. If you keep at it, chances are that your 
pet will come around to doing things the way you want. 

Chapter 15: Coexisting with Kids, Relatives, Neighbors, and Pets £q / 


Problems with pets 

Q: My dog occasionally barks when I'm on 
important phone calls. What can I do to control 
this problem? 

A: Boy, do we know this problem! We have a 
little barker lying at our feet right now. Here's 
what to do: 

v* Make sure the phone in your office has a 
mute button so that you can discipline your 
dog without interrupting your phone con- 

v* Train your dog not to bark, but keep in mind 
that this takes time and energy. If you're 
willing to make this investment, we suggest 
professional trainer Matthew Margolis's 
The Ultimate Guide to Dog Training: How to 
Bring Out the Best in Your Pet, coauthored 

with Mordecai Siegal. For more information 
about "Uncle Matty's" other books, videos, 
products, and services, call (800) 334-3647 

or visit www. unci em at ty .com. 

Alternatively, you can use a phone headset, 
such asthe Ja bra, produced byGN Netcom 
(, widely available at 
office supply retailers), which has a special 
microphone that filters out room noise. 

Ignore the barking. You say that your dog 
only barks occasionally. Unless it really 
drives you crazy, just relax on those occa- 
sions. And if the barking is quite audible, 
jokingly apologize to your caller for the 
enthusiasm of your home-office mascot. 


Paul and Sarah are big believers in the sock method of training; it has worked 
wonders with their dog and has made sharing their workplace not only toler- 
able, but also enjoyable. Simply toss a pair of socks near the dog — you don't 
need to hit it — so that you startle it, interrupting the barking or other behav- 
ior you want to stop. Paul and Sarah have graduated from socks and use a 
small dog toy, which Billy picks up and plays with for a few minutes. They've 
stopped the annoying behavior, and Billy's happy, too. 

Workaholics, Unite! (It's Time 
to Get a Life!) 

Although work is fun, pays the bills, and can be one of the most fulfilling 
aspects of our lives, there can be too much of a good thing. Just as alcoholics 
are consumed by liquor, workaholics are consumed by their work — always 
focusing on getting more work done and meeting a never-ending succession 
of deadlines. 

288 P art '^ : Making It Work: Moving Ahead 


Sound familiar? In an article for an online magazine, here's how Peter described 
his own brush with workaholism during the time that he was transitioning from 
a regular career to having his own home-based business: 

/ became a workaholic, slogging through the standard eight hours a day plus 
an hour for lunch at my regular job and squeezing in my writing projects 
whenever and wherever I could. This meant stealing away with my laptop to 
a local coffeehouse for the previously mentioned lunch hour and firing up 
my home-office computer at about 9 p.m. — routinely hitting the keyboard 
until 2 or 3 in the morning. Day in and day out, week after week, month 
after month. Whenever a friend or coworker complained about working late 
the night before — until 9 or 9:30 — I'd wince, because that was when my 
second shift had only just begun. 

The trouble is, no matter how hard they work, workaholics never catch up 
with their work and never have a chance to take time off or to relax. In fact, 
just the thought of taking a day or two away from work is enough to make 
many workaholics break out in a cold sweat and start shaking. 

"So what?", you may ask yourself. "Why is this a problem?" Workaholics jeop- 
ardize their physical and mental health by not taking time to relax fully from 
their work or to get the rest and sleep they need to recharge their batteries. 
They often fail to get the exercise they need to build a strong body and mind. 
Workaholics jeopardize their personal relationships with family and friends 
by putting their work before those they love. Finally, they also jeopardize 
their work relationships when they become unstable and unreliable because 
of overwork, delivering poor-quality or late products or services to their cus- 
tomers or clients. And guess what? That is a sure going-out-of-business plan. 

Are you a workaholic? Are you sure? Here are some warning signs: 

*<* Are you always working, even when you're not "at work"? 

W Do you feel uncomfortable about the idea of taking time off or a vacation? 

v* When you do take a vacation, do you bring your cell phone, laptop com- 
puter, organizer, and other equipment with you to conduct business? 

j-** Are the majority of your friends also your business associates? 

*<* Do your friends and family complain that you never spend enough time 
with them? 

Recognizing workaholic tendencies is the first step, but breaking the cycle of 
overwork can be difficult. If you are a workaholic, though, the state of your 
health and your relationships — both personal and business — may depend 
on it. 

Chapter 15: Coexisting with Kids, Relatives, Neighbors, and Pets 2Sy 

Here are a variety of tips for breaking the cycle of overwork and workaholism: 

t-" Schedule breaks, time off, and vacations. Just as you schedule busi- 
ness appointments in your calendar, schedule vacations and regular 
breaks (15 minutes here and there throughout your workday) in your 
calendar as well. Making plans for taking time off of work will increase 
the probability that you'll actually follow through with them. 

*<* Get voice mail — and use it. Don't leave your business phone on all the 
time. Set regular business hours and then forward your calls to voice 
mail outside those hours. When work is over for the day, it's over. Here's 
a tip: When you want to take a mini-vacation in the middle of your work- 
day, set your phone so that it rings directly to voice mail. You can pick 
up the messages later, after you return from your "vacation." 

is* Maintain an active social life. There is life outside of work! Stay active 
socially, and build and maintain relationships with friends who have 
nothing to do with your work. Invite your neighbors over for impromptu 
parties; join a rock-and-roll band; become active in your community. 

is* Engage in hobbies and other interests. Many workaholics allow their 
personal interests and hobbies to go by the wayside as work overwhelms 
their every waking moment. This is a huge mistake but one that can be 
easily rectified. Revisit your hobbies and other interests, and take time to 
pursue them. 

i^ Hire an assistant or farm out tasks. Sure, you can work every waking 
hour of every day, if that's what you want to do. But that's definitely not 
an effective approach to doing business. If you're so busy that you really 
don't have time to do anything else, hire someone to help you out. Try 
to find a stay-at-home mom or dad, or another home-based worker who 
is looking for some extra, part-time work. Get the word out through 
friends and family or through your children's school. 

Teaming Up u/ith a Spouse 
or Other Lotted One 

You can find countless examples of husbands, wives, siblings, and kids who 
have pulled together to build successful enterprises: the Wright Brothers of 
Dayton, Ohio (later of flying fame), and their bicycle shop; brothers Walt and 
Roy Disney, who founded the Walt Disney Company and built it into a global 
entertainment powerhouse; and International Fieldworks, Inc., a multimillion- 
dollar company that Barry Allen and Pauline Field created from their home 
that provides work for hundreds of others through project-management con- 
tracts. The list goes on and on. 

290 Part IV: Making It Work: Moving Ahead 

For many home-based businesspeople, teaming up with a spouse, boyfriend, 
girlfriend, sibling, parent, son, or daughter may seem like the ultimate dream. 
And for many home-based businesspeople, this dream is a reality. After all, if 
working at home is the right answer for you, why not for those you really 
care about as well? But unfortunately, for others, teaming up can also turn 
into the very worst kind of nightmare — scary beyond all belief. The secret is 
knowing when to team up and when not to — and what to do when a good 
team goes bad. 

In the sections that follow, we take a look at when to team up with people you 
care about; how to team up; and how to build a successful, long-term rela- 
tionship — at work and away from the job. 

Knowing when to team up 

As in the rest of life, some times are better than others to team up with a sig- 
nificant other. You definitely do want to team up when doing so will create a 
positive experience for you, your partner, and your customers. You definitely 
don't want to team up when doing so will create a negative experience for 
any of you. 

Here are some good times to team up: 

t^ When a significant other has common skills and interests. If you decide 
to start a plumbing business in your home, and your spouse has solid 
bookkeeping skills that will help you better keep track of the financial 
end of your business, teaming up makes perfect sense. 

i* When a significant other purchases a business opportunity or franchise. 

What better time to team up than when a close friend or relative buys into 
a business opportunity or franchise? This assumes, of course, that the 
business opportunity or franchise is something that you want to do, too. 

*«* When a significant other can make a positive contribution to your 
business. There will be times when a significant other is at the exact 
right time and place in his or her life to make a positive and substantial 
contribution to your business and to your customers and clients. This is 
definitely the time to team up, and it's a time when 1 + 1 can truly add up 
to more than 2. 

i* When a significant other has a resource that you need. What if you need 
a large amount of cash to get your business off the ground, and your 
significant other would like to help by providing you with a loan? Or 
what if he or she has a network of contacts that would be very beneficial 

Chapter 15: Coexisting with Kids, Relatives, Neighbors, and Pets 2yl 


for you to approach? Such resource synergies can make teaming up a 
very smart move. 

is* When a significant other has more work than he or she can handle. 

Nothing succeeds like success, as they say, and there may be times 
when a significant other is so successful that he or she needs help, and 
needs it fast. Teaming up can be a win-win in this kind of situation. 

Not every business team or partnership is going to work. Working closely 
together — day after day — may bring out the worst in your partner, and 
you should always be ready to break up your team if necessary. Do not — we 
repeat, do not — allow a bad situation to become worse just because you are 
afraid to tell a friend or relative that your partnership is not working out. 
Always be honest — with yourself and with your partner. And never team up 
out of weakness or pity for a significant other who just can't seem to get his 
or her act together. Finding the right time to team up is a must if you want 
your business relationship to be successful over the long run. 

Figuring out how to team up 

How you team up with a significant other is just as important as — if not more 
important than — when you team up with them. Doing it the right way can help 
reinforce your relationships and increase the likelihood of your success. Doing 
it the wrong way can be a recipe for disaster — not only for your business, but 
for your relationships, too. 

When teaming up with significant others, be sure to consider taking the fol- 
lowing actions: 

is* Define clear goals, and assign clear responsibilities. Although you may 
have different approaches to getting there, you and your partner should 
agree on definite and clear goals and on who will be responsible for dif- 
ferent jobs and tasks within the business. Confusion is not a good thing 
in business or in relationships; clarity is. 

**" Get important agreements in writing. Of course, you should be able to 
trust your significant others without question, but it is always better to 
get your important agreements in writing. Sometimes these agreements 
are incorporated into legally binding contracts. People forget; misunder- 
standings arise; relationships are broken. Why rely on your memory 
when a piece of paper will perform the same function without fail? 

is* Encourage each other to communicate openly. Communication is 

incredibly important to the success of a business, and it's equally impor- 
tant that you and your partner communicate openly and honestly with 

2^2 P art IV: Making It Work: Moving Ahead 


each other about all aspects of your relationship and your business. 
Always be up front and open with your business partners, no matter 
who they are or how closely you are related. 

is* Treat each other with respect. You treat your clients and customers 
with respect, and you should treat your partner with respect, too. If you 
don't respect partners enough to treat them like you do, don't team up 
with them in the first place — and you may want to reconsider your 
entire relationship. 

is* Take a break from each other whenever necessary. People get on each 
other's nerves from time to time, no matter how good the relationship is. 
Rather than getting mad or stewing on it, take a break from each other 
for a while. This gives you both time to get over whatever issue is bug- 
ging you and to remember what it is that drew you together in the first 

If you do it right, teaming up with a significant other can strengthen and 
deepen your personal relationship. Work hard on bringing out the best in 
both of you instead of the worst. For more information on collaborating with 
others, see Paul and Sarah's book Teaming Up: The Small Business Guide to 
Collaborating with Others (co-authored by Rick Benzel). 

Working at home with a baby 

Q: Though I've just had a baby, I obviously can't 
take maternity leave from my home-based busi- 
ness. How do I balance the needs of my busi- 
ness and my clients with a demanding newborn, 
each of which take an incredible amount of 

A: Get help. Most women home-business 
owners take some type of maternity leave. They 
stagger contracts or clients so they have a one- 
or two-month break, hire temporary or part-time 
personnel, or subcontract work to colleagues 
for a period of time. Get help caring for your 
baby, get help running the business, or arrange 
for some combination of the two. Begin by 
deciding what kind of assistance will be most 
helpful. Ask yourself the following: 

*<" How much time during each day do you 
want to devote entirely to your baby? 

j"* What aspects of your baby's care could you 
use help with? What do you want to do 

j"* Which business tasks are the most burden- 
some right now? Which demand your full 
attention without interruption? 

j"* Which tasks must you do? Which can 
others do? 

By working from home, you have many more 
options fortailoring child-care arrangements to 
your particular needs. For help with your new- 
born, for example, you can hire a nanny to come 
to your home for a few hours each day while 
you work. We hired an elderly woman to help us 
when our son was an infant. Alternatively, you 
may be able to line up help from family or 
friends, or exchange babysitting hours with 
other new mothers. When you feel comfortable 

Chapter 15: Coexisting with Kids, Relatives, Neighbors, and Pets £yj 

taking the baby out, you can place him or her in 
a nearby family day-care home for several 
hours a day. 

Sometimes new fathers can take paternity 
leave. Having Dad at home, even part-time, can 
be a big help. Mom and Dad can care for the 
baby in shifts, and Dad can help answer the 
business phone and do other business-related 
tasks. Taking simple steps, such as getting a 
voice-mail service or hiring an answering 
service to take your calls, can free you to 
better concentrate on both family and business 

matters. Hooking up a baby monitor between 
your baby's room and your office may also help. 

Setup a schedule thatsuits both your needs as 
a new mother and your work habits. For some 
people, this means working only mornings, 
afternoons, or evenings. For others, it involves 
fitting work around the baby's sleep times. To 
keep your sanity, remember thatthis is a special 
time. It can be exhausting, but it will pass all too 
soon, so do arrange your schedule to enjoy it 
while you can. 

Building a healthy, tony-term relationship 

If all goes well, working with a significant other in your home-based business 
can go a long way in helping you build a deeper and even more profound per- 
sonal relationship. And if you decide to team up with someone you love, nur- 
turing your personal relationship should be just as important as developing a 
healthy business relationship. If one suffers, the other is sure to suffer as well. 

The following are some tips for building healthy, long-term relationships — 
both personal and business — with your significant others: 

«-** Be clear about who's in charge. In most businesses, one person is ulti- 
mately in charge and has the right to veto the suggestions or actions of 
others, including partners. Make this clear at the outset, but be sure to 
ask for the input of your partner and to give that input serious consider- 
ation. If your business is a true, legal partnership — with ownership 
shared in equal amounts — be sure that you establish a system for 
making decisions when you are in disagreement with your partner. If 
making decisions becomes problematic for you and your partner, you 
probably should not be in a business partnership in the first place. 

is* Don't interfere with how your partner achieves his or her goals. Focus 
on agreeing on what your goals are and on letting your partner decide 
how he or she will reach them. Avoid the temptation to micromanage 
your partner's efforts or to interfere with or second-guess them. You'll 
only build resentment and erode your long-term relationships. 

is* Don't forget to nurture your private lives. Every couple working together 
needs to take time away from the demands of their business to focus on 

2ty(} Part IV: Makin 9 ll Work: Moving Ahead 


themselves and on their relationship. You can find a number of ways to be 
fun and spontaneous in your relationship. Close the office for a day, and 
enjoy a long weekend at a resort or on a trip to the beach or mountains. 
Take a long lunch together, or treat yourselves to an afternoon of pamper- 
ing at a spa or health club. Or simply turn off the phone and sleep in late 
one morning. 

j*"* Seek the help of a professional counselor if needed. Sometimes rela- 
tionships can be broken, and the help of a professional is needed to put 
them back together. Don't hesitate to seek counseling if your relation- 
ship is broken — the sooner you do, the easier it will be to get things 
back on track. 


Long-term relationships can be the most meaningful relationships in your life, 
and there's no reason why you can't share a meaningful and productive busi- 
ness relationship with someone with whom you share a close personal rela- 
tionship. It has worked for Paul and Sarah, and it has worked for Peter and 
his wife, Jan. Explore the possibilities! 

Chapter 16 

Don't Just Stand There, Grow 

In This Chapter 

Understanding success 
Deciding whether or not to grow 
Partnering with others 
Expanding operations 
Moving on 

1\ time comes in the life of every business owner when he or she has to 
w \ make a decision: whether or not to grow the business. If you're good at 
what you do, and your customers love the products and services that you 
sell them, don't be surprised if after you start your business, you're soon 
faced with more customers and clients than you can handle. 

When your business increases to a point where you can't accommodate it in 
the normal course of your day, you have to make a conscious choice: Reject 
this extra work and maintain the status quo (or perhaps even cut back the time 
and effort you devote to your business to allow yourself to spend more time 
with loved ones, volunteer in your community, or just relax), or take on the 
extra work and grow. For many home-based business owners, this isn't even a 
question. For them, being in business means growing the business, pure and 
simple. For many others, however, the prospect of growth is something they 
prefer not to embrace. They're comfortable with things the way they are, have 
made a decision to spend less time working and more time with family and 
friends, or have any of a thousand different reasons why growth is not some- 
thing that holds an attraction for them. 


In the case of growth, the right answer is the one that's best for you. And 
what's best for you may or may not be what's best for your clients and cus- 
tomers, your family and friends, and any employees or contractors that you 
may have. 

296 Part IV: Making It Work: Moving Ahead 

In this chapter, we consider what makes a business a success and examine 
the good and the bad news about owning a growing company. We take a close 
look at bringing partners into your business and expanding your operations. 
Finally, we explore strategies for selling your business and moving on to 
other opportunities. 

Becoming a Success 


Success is a relative thing. While one home-based business owner may be 
pulling down a $25,000-a-year, part-time salary — considering himself a 
smashing success while enjoying lots of time with family and friends and 
making a nice contribution to the family finances — another may consider 
that minimal level of income to indicate failure. As the owner of your home- 
based business, you get to decide how to define what success means to you; 
no one else can or should define it for you. You may decide to measure your 
own success in terms of money or in terms of how many clients you can help. 
You may also measure success in terms of your ability to achieve an equal 
balance in your work and personal lives. When you're the one who decides 
what success means to you, there is no wrong answer. 

After defining what success means to you, though, like anything else that you 
want to achieve in your life, you have to have a strategy for achieving the goals 
you've set for yourself. Although anyone who puts his or her mind to it will find 
some measure of success, starting up a successful enterprise involves more 
than just working hard. William Bygrave, former director of the Center for 
Entrepreneurial Studies at Babson College and one of the nation's top experts 
on entrepreneurship, describes nine keys to success for an entrepreneurial 
business in his book The Portable MBA in Entrepreneurship. Bygrave calls these 
keys the Nine Fs: 

u* Founders: Every startup must have a first-class entrepreneur. (That 
means you.) 

u* Focused: Entrepreneurial companies focus on niche markets. They spe- 
cialize. (Fuzzy companies lead to fuzzy customers; people are willing to 
pay top dollar for products and services that clearly appeal to their 
wants and needs.) 

*«* Fast: They make decisions quickly and implement them swiftly (but 
never so quickly that they don't take time to understand and consider 
the alternatives before they implement their decisions). 

u* Flexible: Entrepreneurial companies keep an open mind. They respond 
to change. (Small, home-based businesses can often respond much more 
quickly to change than larger businesses — a key advantage in today's 
fast-changing, information-driven marketplace.) 

Chapter 16: Don't Just Stand There, Grow 2^ 7 

is* Forever innovating: They are tireless innovators (at least until 2 or 3 in 
the morning, when most of them make sure they go to bed and get some 

is* Flat: Entrepreneurial organizations have as few layers of management as 
possible. (This is quite easy when you're a sole proprietorship and have 
no employees.) 

**" Frugal: By keeping overhead low and productivity high, entrepreneurial 
organizations keep costs down (which means they are more profitable). 

*<* Friendly: Entrepreneurial companies are friendly to their customers, 
suppliers, and workers. (And because of that, their customers, suppli- 
ers, and workers are friendly right back, demonstrating their friendliness 
with orders for products and services.) 

v* Fun: It's fun to be associated with an entrepreneurial company. (Owning 
your own home-based business doesn't mean you can't have fun — 
indeed, if you're not having fun, why bother?) 

Compare the way you do business with Bygrave's Nine Fs. Do the two have 
any similarities, or are they miles apart? The more Fs you find in your own 
home-based business, the greater your chances of finding success at the end 
of your rainbow. 

Identifying the Upside and 
downside of Growth 

Business growth has ramifications that extend far beyond the simple day-to- 
day running of an organization: 

*<* Growth means new work, new clients, and new opportunities. 

u* Growth means more money coming into your business, but it also means 
more money going out. 

u* Running a growing business can make your life incredibly busy and hectic, 
but it can also be incredibly rewarding — financially and personally. 

What are your long-term goals for yourself and for your business? Do you want 
to make a certain amount of revenue every year — enough to allow you to sup- 
port yourself and your family? Do you want to make a certain level of profit or 
service a certain number of customers or clients? Do you want to work for a 
certain number of years or save up enough money to travel the world — or 
retire early? Whatever your long-term goals, if you decide that growth is indeed 

2yO P art '^ : Making It Work: Moving Ahead 

in the cards for your business, you can't leave it to chance — you have to have 
a plan to get there. And don't forget: Your business will change, as will your 
feelings about it. Be flexible and prepared to change your plans as your goals 

Growth has both good and bad aspects. In the following sections, we explore 
growth in detail so that you can decide what growth means to you, helping 
you decide whether you'd rather grow, maintain the status quo, or perhaps 
even shrink your business operations. 

Understanding why you may Want to grow 

Although the pressure to grow seems inevitable for many businesses — 
especially ones that do a good job for their customers and clients — growth 
is something that is within your power to control. Too many clients? Trim 
back your client list. Too much work? Turn down new work until you catch 
up. Not enough time for yourself? Do less work. You're in charge; you're the 
boss. The decision is yours. 

So given the possible attraction of maintaining the status quo, why grow? 
Here are a number of good reasons: 

u* Increased revenue and profits: The immediate impact of growing your 
business is an increase in revenues and — as long as your costs of doing 
business don't grow out of proportion — an increase in profit. And if 
we're not mistaken, that's probably one of the reasons you're in busi- 
ness for yourself in the first place. 

u* Building equity: Equity is the amount of money left over after you sub- 
tract all of your company's liabilities from its assets (see Chapter 7). If 
your business is profitable over a long period of time, this number can be 
quite large. Growing your business is likely to grow your equity as well. 

v" Take advantage of economies of scale: The larger your business, the 
more you can take advantage of economies of scale — that is, paying 
lower prices for items you buy in larger quantities. You can, for example, 
purchase a case of laser printer paper at your local Costco warehouse 
store and pay far less per ream than you would if you bought each ream 
individually at Kinko's. 

u* Why not? In the absence of any compelling reasons not to grow, why not 
grow? Growth can be exciting and fun, and who knows — it may lead 
you to new and more exciting adventures down the road. 

Chapter 16: Don't Just Stand There, Grow 2>^ 


Of course, it's okay not to grow, if that's the way you decide to run your busi- 
ness and your life. Many people have become home-based business owners for 
just that reason — to leave the rat race and to get off of the never-ending tread- 
mill of business that devours their personal lives. Propreneurs — business 
owners who make a conscious choice not to grow — are active and vital play- 
ers in the marketplace, and they tend to be just as happy as their entrepreneur- 
ial (and more growth-oriented) counterparts. 

Recognizing the many different 
Ways to grow 

If you've made the decision to grow your business, you have a number of 
ways to do it. The exact approach depends on your growth goals and plans 
and on the nature of your business. The following are some of the most 
common approaches for growing a home-based business: 

i^ Expand beyond your locale. Do you do work only for people who live 
within a few miles of your home or only for close personal acquain- 
tances? If that's the case, one of the quickest ways to grow your busi- 
ness is to expand the area in which you do business. What if you 
decided to do business citywide or countywide? Or perhaps even 
beyond the boundaries of your state? Expanding beyond your locale 
dramatically increases the number of potential clients and customers 
available to you — potentially increasing sales and profits. 

W Get on the Web. With the right Internet presence (be sure to check out 
Chapter 5 to find out exactly how to establish the right Internet pres- 
ence), the number of people who view your product catalog or see your 
work can mushroom. Many home-based businesses have seen tremen- 
dous growth after capturing the imagination of their customers on the 

v* Go international. It's a great big world out there, and depending on the 
products and services you sell, a huge, underserved international market 
may be waiting for you to tap it. For many growing businesses, a plan for 
expanding into international markets is a key success strategy. 

U* Expand your product line. If you currently carry ten different products, 
and you want to double your business, what's the quickest way to achieve 
your goal? Carry 20 different products. Although the exact impact that 
decision ultimately will have on sales depends on the products, their pric- 
ing, and the extent to which you promote them, expanding your product 
line is a quick and easy way to grow your business. 

$00 Part IV: Making It Work: Moving Ahead 

is* Add employees. Adding employees to your business by definition 
means that you're growing it. Just be sure that you never hire new 
employees until you have sufficient business to support them. If your 
revenues are flat or decreasing as you add employees, you have what's 
commonly known as a going-out-of-bminess plan, and that is not a plan 
for home-based business success. For lots of information on the right 
way to interview and hire employees, check out Managing For Dummies 
2nd Edition, by Peter Economy and Bob Nelson (Wiley Publishing). 

You know your business better than anyone else, so think about what you 
can do to grow your business. One of the benefits of being your own boss is 
that you can do whatever you like with your business, whenever you want. 
Think you have a good idea? Give it a try. The more things you try, the higher 
the probability you'll find something that works. 

Jo qwW or not to qroW 

If you've anguished over the decision of whether or not to grow your business, 
you know that the decision isn't just a business decision — it's a personal one 
as well. Because you're the one who has to live with the consequences of the 
decision to grow or not, it's in your interest to thoroughly examine yourself, 
your business, and the marketplace to make sure that whatever decision you 
make, it's the best one for you and for your business. 

Here are four key places to look as you consider whether or not to grow your 

**" Check your heart. The first place to look when you're thinking about 
growing your business is deep inside your heart. Take some time to get 
away from the hustle and bustle of your business ,and really listen to 
what your heart tells you. Are you looking forward to the excitement 
that business growth with bring with it, or are you secretly dreading the 
possible consequences of such a choice? What does your heart say? 

u* Check your lifestyle. Will your preferred lifestyle support or be in con- 
flict with the growth of your business? If, for example, the growth of your 
business will take you away from your family — and spending more time 
with your family is one of the key reasons why you started your home- 
based business in the first place — you'll likely resent the extra time you 
have to devote to your business, as will your family, who will have less 
of your time. 

*<* Check the numbers. Of course, your heart and lifestyle may say "go," 
while your business (more specifically, your business's financials) says 

Chapter 16: Don't Just Stand There, Grow 3 1 


"no." If your company's sales are too low or costs too high, growing your 
business probably isn't the best thing to do. Can you somehow increase 
sales or decrease costs enough for growth to make sense? If not, either 
figure out some way to put your financials on the right track or put your 
growth plans on the back burner until the numbers do make sense. 

Check the market. You may think it's time to grow, but the market in 
which your business operates may not be ready for you. Before you 
invest lots of time, money, and effort in growing your business, be sure 
that enough potential customers and clients are interested in buying 
your products and services. If they aren't, you're just wasting your time 
and your hard-earned money — two things that are especially precious 
for every home-based business owner. 

Diversifying your client list 

Q: I've been in business for three years, and 
about 80 percent of my work comes from one 
client. How could I possibly find the time to 
diversify while still keeping my client satisfied? 

A: As great as the steady cash flow is, getting 
the bulk of your income from just one clientputs 
you at great risk should that client suddenly 
decide to work with someone else. You sound 
as though you not only get 80 percent of your 
income from this one client, but also spend most 
of your time serving him or her. To free your time 
to market and serve new clients, you need to 
get some additional help. Evaluate what por- 
tions of your work can be done by an assistant, 
associate, or outside contractor. Arrange to free 
up at least two hoursa weekfor marketing, and 
begin breaking in someone to work with you so 
that when you generate new business, you 
have dependable help to meet the demand. 

Although you don't mention the nature of your 
business, in many fields, self-employed individ- 
uals can't or prefer not to market themselves, 
preferring instead to subcontracttheir services 
to someone else. Such individuals like to work 
with people like you. Be certain, however, that 

all the billing and all funds come through you. 
Be sure you get clear, written agreements pre- 
venting associates or subcontractors from con- 
tracting directly with your clients. Also, you 
need to line up individuals you can depend 
on to do high-quality work within necessary 

To find associates you can count on, get refer- 
rals from sources you trust. Be sure to review 
their work, and talk with them about how they 
approach their work and what their priorities 
are. Ask for — and check — references. Most 
important, start with one small, low-risk assign- 
ment. Set a clear goal and a specific deadline. If 
the deadline is more than a week away, check 
progress intermittently and, if possible, askthat 
portions of the work be turned in as they are 
completed. This can help you identify possible 
problems before they develop. 

Keep in mind that working with someone else 
will, in and of itself, take some additional time — 
especially at first. But by building a network of 
others you can rely on, you can expand without 
taking on debt or adding to your expenses until 
you have the business to cover them. 

302 Part IV: Making It Work: Moving Ahead 


All of these factors play a role in the growth decision; the weight that you 
place on each depends on your own personal desires and goals. Many busi- 
nesses have succeeded, for example, when the numbers didn't make sense or 
when there did not seem to be broad support in the market for a business's 
new initiatives. But behind businesses like these, there have been incredibly 
motivated and hard-working business owners. 

Bringing \n Partners 

A partnership is when two or more people team up in the ownership and oper- 
ation of a business. Many well-known businesses have started out as success- 
ful partnerships (and home-based businesses at that), including Microsoft's 
Bill Gates and Paul Allen; the Disney brothers, Walt and Roy; and Ben & Jerry's 
ice cream namesakes Ben Cohen and Jerry Greenfield. While these businesses 
quickly outgrew their original partnership structures — eventually becoming 
large, multinational (and publicly owned) corporations — the combination of 
the original partners provided the spark of creativity and energy that led to 
great success. 

When a partnership works, the business will run like a well-played symphony. 
When it doesn't, it's more likely that things will be closer to a scene from the 
film Titanic (specifically, that part where the ship sinks). Unfortunately, you 
can't really know how things will turn out until a partnership is actually cre- 
ated and the partners begin to work together. It's sort of like a marriage; you 
really don't know how things are going to really work — or even if they will 
work — until the honeymoon is over. 


More than a few friendships, families, and personal relationships have been 
destroyed by partnerships gone bad. Partners can clash in a variety of ways, 
and these clashes may only occur in a business environment under the pres- 
sures of a busy schedule. That's why you should always apply the same stan- 
dards of care when you decide to partner with family or friends as you would 
when hiring a stranger. 

The following are some tips for ensuring that your partnerships operate 
smoothly. (For more specific information on the partnership form of 
business — including advantages and disadvantages — take a look at 
Chapter 11.) 

is* Date first. Before you get married, it's a good idea to date your prospec- 
tive mate for a while first — a few months or a even a few years would 
be good. Not only will this approach allow you to develop trust and find 
out how to communicate with each other, but it also allows you to see 
both the good and the bad sides of your partner. Business partnerships 

Chapter 16: Don't Just Stand There, Grow jOj 

work the same way: Get to know your prospective partner very well 
before you tie the knot. Consider doing shared marketing or a specific 
project together first. 

is* Partner only with someone you trust. Trust is the glue that holds a 
partnership together and allows you to achieve great things. Don't even 
consider — not for one second! — partnering with someone you don't 
trust or respect. The road to business success is littered with broken 
partnerships that fell apart as soon as the trust that kept them together 

i<* Don't partner until you can stand on your own. You should partner 
from a position of strength, not weakness. Otherwise, your business will 
become a codependency and, thus, dysfunctional. And a dysfunctional 
company is a company that's going to have problems serving its cus- 
tomers well and making money. 

is* Enlist partners who add to the business. Ideally, your partner will com- 
plement you and bring positive personal value to the company. Short 
on cash? Then find a partner who will provide the cash you need. Need 
help marketing? Then find a partner who is a strong salesperson. Don't 
like managing the business? Then a partner who is a strong leader and 
administrator will be the right choice for you. Just as you should hire 
employees who shore up your weaknesses, choose partners to cover the 
skills or connections that you lack. 

«-" Share the equity (and the burden of risk). Sharing equity means shar- 
ing ownership of the company with your partners. If you don't share 
ownership with your partners, they will not act as though they are 
owners — they won't value the business the same way you do, and they 
won't be willing to make the same sacrifices as you to keep the business 
alive and healthy. But if you agree to share ownership of your company, 
be sure to require partners to share equally in the risks associated with 
the business. 

**" Create a written partnership agreement. Formalize your partnership in 
a written agreement that spells out — clearly and unambiguously — the 
ownership stake of each partner, rights to business proceeds, and his or 
her responsibilities to the business. Our advice is to spend the relatively 
small amount of money necessary to have an attorney draw up a proper 
partnership agreement for you and your prospective partners to sign. 
Many business partnerships eventually fail; when they do, a well-written 
partnership agreement can help protect the huge investment of time and 
money that you have made in your business. 

Follow these tips, and your partnerships should be happy ones. If not, you 
can always split up the partnership and try again, but you'll have a much 
easier (and more profitable) time by doing your homework and getting it 

301} Part IV: Making It Work: Moving Ahead 

right the first time. Keep in mind, too, that as Paul and Sarah and Rick Benzel 
describe in their book Teaming Up, partnership is only one of many ways of 
collaborating with others, many of which carry less risk. 

Cashing Out and Other Exit Strategies 

Although starting and growing a business is the common focus for most 
entrepreneurs whose businesses are young, eventually a business owner's 
thoughts turn to other goals — specifically, the goal of selling the business 
and retiring or moving on to a new business. For some people, this phenome- 
non occurs at an early age (coauthor Peter still dreams of retiring before he 
hits 50; however, the reality of his currently advanced years, along with three 
kids rapidly approaching college age, may have its own say in the matter). 
Others plan to work literally until they take their last breaths. 


If and when you do decide to exit your business, you'll be faced with even 
more decisions — in particular, when and how to gracefully sever your ties to 
the business so that its value is not damaged in the process. You can find all 
kinds of strategies for exiting your business, from mild to extreme. Here are 
some of the most common: 

i** Sell it. Businesses are bought and sold all the time (take a look at sites 
like www. businessesforsale.comor your local newspaper classified 
advertisements). If you've built a strong customer base or have a valu- 
able inventory, or if your operations are particularly profitable or other- 
wise attractive to a potential buyer, you may be able to make some 
significant money in the process. And that's not a bad thing! 

*«* Merge it. Merging your operation with another business can create a 
new business that's more powerful and profitable than the two busi- 
nesses were separately. In a merger, you have the option of stepping 
aside in favor of having the owner of the other company run and operate 
the combined companies while you maintain an ownership stake, or you 
can accept some form of one-time or ongoing payment or royalty while 
acting as a part-time consultant or adviser to the business. Either option 
can make a lot of sense, depending on your personal preferences. 

is* Pass it to a family member, friend, or employee. If you have a son, 
daughter, close friend, or employee who is particularly interested in 
keeping the business going, you always have the option of passing it on 
to the person or people of your choosing. You can choose to pass it on 
for free, sell it, or set up some sort of compensation arrangement such 
as an ongoing royalty or payment based on a percentage of sales. 

Chapter 16: Don't Just Stand There, Grow ^05 


Close it. Of course, you can simply close the business, unplug your 
answering machine, and move on with your life. For many home-based 
business owners interested in exiting their businesses, this is the sim- 
plest option by far. If you decide on this option, it's good karma not to 
leave your customers hanging out to dry, wondering where their orders 
are. See the nearby "Shutting down your business" sidebar for ideas on 
how to make sure your loyal customers are taken care of. 

Whatever decision you make, be sure to carefully match it with your long- 
term goals. If you merge the business with another or pass it to a family 
member, friend, or employee, you may have the opportunity to keep your 
finger in the business's operations if you desire. If you sell or close it, how- 
ever, chances are slim (very, very slim, in the case of a closed business) that 
you'll be able to have anything further to do with it. Is that what you really 
want? Are you really ready to call it quits? Only you know the answer to that 
question, and only you can make the ultimate decision. 

Shutting down your business 

Unfortunately, not every home-based business 
is destined to last forever, which means that at 
some point, you may have to close it — whether 
by choice or due to circumstances out of your 
control. If this happens, here are a few tips to 
ensure that your customers aren't left out in the 

v* Give your customers plenty of notice. A 
month is not too long. 

j-" Refer your customers to companies like 
yours, including former competitors (you 
won't need to worry about them anymore, 
right?). The idea is to give your customers 
as many options and alternatives as 

<-" Offerto train your customers to do whatyou 
do. You might have a customer or two who 

would like to start a business like yours or 
add your business to their own. 

*<" Subcontract the work to another company 
or individual inyourfield. 

*<" If you have a contractthatis legally assign- 
able, sell or transfer it to another company 
capable of satisfying your clients. It's 
always a good policy, whether required by 
your contract or not, to prepare the client 
for a change in who will be providing the 
goods or services. 

*<" Sell your client list to another company or 
individual in your field, letting your cus- 
tomers know you're doing this and intro- 
ducing them to the person or company who 
will be filling their needs. 

$06 Part IV: Making It Work: Moving Ahead 

Putting a Value on qow business 

If you decide to sell your business, the first question your potential buyer is 
likely to ask is "How much do you want for it?" Do you have any idea how 
much it is worth? If you do, are you sure the price is right? 

You can use a number of different ways to establish a price for a business. If 
you're thinking about selling your home-based business, consider the follow- 
ing methods: 

is* The firm's earning capacity: How much money does your business rake 
in every month or year? Are your sales high enough to offset expenses 
and leave a reasonable profit behind? The higher the earning capacity of 
a business, the more it will be worth to a potential buyer and the more 
he or she will be willing to pay you for it. 

t-" The value of its assets: If you have a lot of money tied up in physical 
assets, such as inventory (the products you keep on the shelf to sell 
to customers) or machinery (say, medical transcription equipment or 
mechanic's tools), the worth of your business will surely be influenced — 
or perhaps even determined — by the value of your assets. The higher the 
value of your assets — and the ease with which they can be converted to 
immediate use by a buyer or into liquid assets such as cash — the more 
money you'll be able to demand for your business. 

is* The market value of similar firms: The value of firms similar to yours 
will inevitably have a significant influence on the value of your firm. You 
can get a rough idea of your firm's value by finding out what similar busi- 
nesses are selling for. Try listings of businesses for sale in your local 
newspaper classified ads or check out the www.businessesforsale. 
com Web site. 

is* The value of the company's stock: If your business is organized as a 
corporation, and you have issued stock, that stock has value. Because 
buying stock in a company is the same as buying the company itself, the 
value of that stock can often determine the value of the business. 

Now What) 

You've sold your business or handed it over to your daughter, and you've 
done your best to keep your nose out of how she's running it. But for years, 
you've spent the better part of your waking hours working and, lately, run- 
ning your own business. Now what? 

Chapter 16: Don't Just Stand There, Grow J)07 


Many people dream about retirement their whole working lives, but after 
they get there, they find that they miss the action and the demands and 
responsibilities of a busy business environment. Of course, others adjust to 
their retirement just fine and spend their days traveling the world, fishing, 
or enjoying a good book. If you're ready to take the next step, but you're not 
exactly sure what that step is, be sure to read Paul and Sarah's book The 
Practical Dreamer's Handbook: Finding the Time, Money, & Energy to Live the 
Life You Want to Live (Jeremy P. Tarcher). 

Whatever you decide, don't forget that you always have one option open to 
you: starting another business. As this book describes, starting your own 
home-based business can be amazingly simple, and the rewards are many. 

jOo P art '^: Making It Work: Moving Ahead 


The Part of Tens 

The 5 th Wave By Rich Tennant 

"Oh, we've doing just great. Philip and I 
are selling deceptive jellt^ jars on -the 
"Web. I run the VIeb site ard 'Philip 
sort o£ controls the inventoyg." 

In this part . . . 

7hese short chapters are packed with lots of quick and 
powerful ideas to help make your home-based business 
the kind of success you've always dreamed of. Read them 
when you have an extra minute or two. 

Chapter 17 

Ten Tips to Succeed in Your 
Home-Based Business 

In This Chapter 

Doing what you love — and becoming an expert 

Being businesslike in your dealings 

Selling yourself and charging what you're worth 

Avoiding unnecessary expenses and monitoring your cash flow 

Asking for referrals 

1\ lthough no one can guarantee that your home-based business will bring 
¥ \ you the fame and fortune you hope it will, if you work hard, price your 
products and services right, and keep your customers satisfied, you stand a 
good chance of doing just that. The results you get out of your business are a 
direct result of the work you put into it. That relationship between work and 
results is one of the real joys of having a home-based business. Plus you get 
to see the fruit of your labor every day, when satisfied clients and customers 
tell you how much they enjoy doing business with you — and buy more of 
your products and services. 

The most successful home-based business owners — those who get the results 
they had hoped for — share a variety of traits. We discuss ten of them in this 


Part V: The Part of Tens 

Do What \lou Lotfe 



We all dream about the job that we would do if only we had the opportunity 
to do it. Unfortunately, for many of us, our current job is something we do 
because we have to pay the bills, not because we want to. What if you could 
do what you really loved to do? Wouldn't that be great? It is, and it's exactly 
the opportunity you get by starting your own business. But to do what you 
love, you first have to know what kind of work you really want to do. This 
requires intense introspection and an understanding of which kinds of work 
get your creative juices flowing and which kinds dry them up. Doing what 
you love also sometimes requires that you ignore what other people want 
you to do for a living. You may decide, for example, that you'd really like to 
start a recording studio in your home, but your spouse or best friend may 
think something more practical, such as buying into a fast-food franchise, 
makes more sense. Ultimately, you must decide what you're going to do for 
a living — even if it means you can't work at home. 

It's your dream — you're the one who gets to choose it (and live it!). No one 
else has the right to tell you what kind of work you should love — and do. 

Treat \lour Business Like a Business 

If you want your business to be a business — an organization that generates 
the kind of money you need to become financially independent — you have 
to treat it like one, not like a hobby or a momentary fling. Here are some 

W Set aside a real home office — not just a closet or a shelf — exclusively 
for your business (see Chapter 14). 

v* Make an investment in business equipment and supplies: a decent com- 
puter, extra phone lines, a fax machine, and whatever else you decide 
you need to run your operation. 

v Create a marketing plan and marketing materials (see Chapter 4). 

«-" Publicize your company's products and services to a wide audience of 
potential customers and clients. 

v* Build a strong customer base and make plans for future growth (see 
Chapter 16). 

Chapter 17: Ten Tips to Succeed in Your Home-Based Business 3*3 


Treating your business as such doesn't mean that you can't have fun, though, 
or that you can't make up your own rules along the way. Indeed, being your 
own boss means that you get to decide how you're going to run your business. 
If you want to work only on weekday afternoons, for example — setting aside 
mornings for exercise or spending time with your kids — you can do that and 
still have a serious business. 

Became an Expert 


People respect those who know more than they do. By specializing, you 
assume the role of a presumed expert, even if you've just started your busi- 
ness. It makes good business sense for your clients to hire an expert instead 
of someone less experienced. By avoiding the mistakes and dead ends that 
someone with less experience may make, your clients could end up spending 
less money by hiring you — even if your hourly rates are higher. 

The interesting thing about becoming an expert is that the passage of time 
makes you increasingly more experienced in your field. As time goes on, 
potential clients and customers will seek you out just to get the benefit of 
the expertise you've developed through experience and education. 

Don't Be 5% 


There's a reason why companies spend millions of dollars advertising their 
products in the media: because it's a particularly effective way to get the 
attention (and, ideally, the business) of potential customers. Unfortunately, far 
too many people believe that a good idea is all a successful business needs. 
In the real world, it takes far more than that; the world is chock-full of good 
ideas that have gone nowhere fast. Even the best ideas have to be packaged, 
presented, and sold, and the key is to identify and use marketing methods 
suited to both your personality and your business. 

While you may never have had to sell yourself or your products before, 
when you own your own business, this must change — and fast! After you 
generate momentum and build a strong customer base, you can rely more 
on referrals from your happy clients. But when you're getting your business 
off the ground, consider and attempt every possible method for selling your 
products and services. 

For a complete discussion of the hows and whys of marketing your products 
and services, check out Chapter 4. 


Part V: The Part of Tens 

Charge What \lou're Worth 

Here's an instant going-out-of-business plan, no matter how hard you work: 
Charge your customers less than you're worth. Why would you do that? Well, 
some people charge less than they're worth because they don't realize exactly 
how much they are worth. Others charge less than they're worth because they 
are embarrassed or afraid to ask for an amount that reflects their true worth. 
Whatever the reason, if you don't get paid what you're worth, you are putting 
your business at risk. 

If you don't know what you're worth, find out what other companies charge 
for similar products or services by researching catalogs, price lists, stores, 
and e-commerce and auction Web sites. From there, develop a pricing or fee 
structure that will help you attain your personal goals. 

After you figure out what you should charge, use the following tips to get the 
price you want: 

f" Become a master at selling the value that your products and services 
offer to your customers and clients. They won't know if you don't tell 
them, so tell them often and in a variety of ways. 

" Get past any hang-ups you have about charging your customers and 
clients what you're worth. Practice, as you would a request for a raise 
or a speech, asking your price in front of a mirror or with someone you 
trust to give you constructive criticism. 

Avoid Unnecessary Expenses 


Shopping for the latest and greatest business gadgets and equipment is 
fun — a lot of fun. And it's a lot of fun to treat clients to expensive lunches 
and dinners, and to drive that snazzy new company car. The bad news about 
all this fun is that it can be expensive (and all of it may not be tax-deductible) 
and detrimental to your company's financial health and welfare. 

Spend your company's hard-earned money only when you have to. A good 
example of this is your personal computer. Every other week, computer tech- 
nology makes another great leap forward, which may constantly tempt you to 
upgrade to the latest and greatest and fastest computer with all of the latest 
bells and whistles. Unless your older, slower, and less flashy computer is 
actually getting in the way of your ability to do business efficently, stick with 
it for as long as you possibly can. Think about adding a bigger hard drive, 
more RAM, or other upgrades that cost far less than buying a new computer. 
Eventually, you'll need to replace that old slug of a computer, but the longer 
you can defer the expense, the better for your company's bottom line. 

Chapter 17: Ten Tips to Succeed in Your Home-Based Business j 1 f} 

Do your best to hold the line on all the other expenses that simply drain your 
financial reserves while bringing in little or no additional revenue. If you're 
going to eat out, for example, go to less expensive places. Save the expensive 
meals for your highest-paying customers. Or consider inviting your best cus- 
tomers as dinner guests in your home. 

Manage \lour Cash Ftau/ 

Cash, or the lack of it, is one of the key indicators of a company's success 
over the long run. If you have cash, you can buy and stock new products for 
your customers, develop innovative new services for your clients, pay for your 
day-to-day operations, and expand your operations. If you don't have cash, 
your business will certainly suffer, and so will your customers and clients. 

It's not enough to simply watch your cash flow — the money going in and out 
of your business — you've also got to manage it. This means looking to the 
future, planning and scheduling your projected cash inflows and outflows, 
billing quickly, staying on top of money owed you, and paying attention to the 
money that goes in and out of your business. See Chapter 7 for more ideas. 

Keep l/our Day Job 


As we suggest in Chapter 6, the best way to work into your own successful 
home-based business is to try it out while retaining your full-time conven- 
tional job. This approach will not only keep your income safe and sound as 
your company revenues ramp up — a process that can take months or even 
years — but it also will allow you to keep your health care and other benefits 
in place, including allowing your employer to continue making contributions 
to the cost of these benefits, if applicable in your case. A rule of thumb for 
when to transition to your business full time is when your business income 
will sustain your minimal living expenses and you feel confident that by 
putting in more time, you will increase your business's earnings. 

When Peter embarked on his new writing career a number of years ago, he 
did so within the safety of his full-time job. While he established his business 
on his own time — during lunch hours and after work — Peter drew a regular 
salary, health benefits, and a retirement plan. Finally, when the time was right, 
Peter left his day job and moved into his home-based writing career full time. 

By approaching the transition to self-employment this way, you can discover 
whether you've picked the right business — and whether you're right for the 


Part V: The Part of Tens 

Build a Solid Customer Base 


One of the most important ways to establish a successful business is to 
build a solid base of customers who stick with you through thick or thin. 
This solid customer base becomes the foundation on which you can grow 
your business. 

Of course, building a solid customer base is much easier said than done. At 
the heart of the process is creating an organization that values its current 
customers and goes out of its way to ensure their satisfaction and happiness. 
Customers are smart — they can tell whether they are high or low on a com- 
pany's list of priorities. If they sense that you don't care much about whether 
they do business with you, they'll likely jump ship as soon as another company 
that really does care about them comes along. 

Always remember the feeling of getting your first customer and your first 
payment for your products and then treat every one of your customers as 
though they were your first. Value them every day, and they will in turn 
value you. 

Ask for Referrals 

The word-of-mouth referral is probably the least expensive and the most effec- 
tive way of getting new business. This makes referrals the most important way 
for home-based businesses to market themselves. Here are several of the best 
ways of earning great referrals from customers: 

u* Do great work: When you do great work, your clients are happy to give 
you great referrals. Do less-than-great work, and you'll be lucky to get 
any referrals. 

*«* Do your work on time and within budget: Do you want to know the 
quickest way to your customer's heart? Do your work on time and within 
budget. If you consistently deliver on your promises, you'll soon have 
more business than you could ever imagine possible. And you'll earn 
your clients' referrals. 

u* Keep your clients well informed: When clients spend their money on you, 
they want to be kept apprised of your progress, not only to stay in touch 
with the project, but also to keep a watchful eye out for problems before 
they get out of hand. Do your clients a favor, and keep them informed 
about your project's progress. Whether the news is good or bad, your 
clients and customers will appreciate your forthrightness and candor. 

Chapter 17: Ten Tips to Succeed in Your Home-Based Business 3 / / 

*<* Be dependable: If anything, you should always keep your word — even 
when it hurts. If you promise to do something, do everything in your 
power to keep your promise, no matter what it takes to follow through on 
it. Who would impress you more (and earn your referral) — a business 
owner who runs to you for schedule extensions every other week or an 
owner who delivers on time, every time? 

i* Be flexible: Customers and clients appreciate vendors who are flexible 
and willing to meet their needs, no matter what those needs are. Not only 
that, but also, they will pay more for that flexibility. Think what you can 
do in your business to better meet your customers' needs. 

u* Thank your clients for their referrals: Everyone likes to be appreciated 
for what they do. Your customers are no different. Be sure to thank them 
for their referrals with a hand-signed card or small gift. 

Many small businesses get the vast majority of their new business through 
referrals. They really are worth their weight in gold! 


Part V: The Part of Tens 

Chapter 18 

Ten Things to Avoid 

In This Chapter 

Letting your business take over your home 

Letting distractions get the best of you 

Eating junk food 

Expecting business to come to you 

Shutting out your personal life — or not letting it go as you work 

£very business is fraught with danger, and home-based businesses are no 
exception. In a perfect world, it would all go just the way you wanted — 
all the time. Unfortunately, you live in a less-than-perfect world where many 
things can go wrong with your business. 

a\MNG Stay alert to the potential problems outlined in this chapter, and take steps to 

■&/ y^t avoid them before they have a chance to negatively impact your business. 
Your home-based business has a much better chance of surviving — and 
thriving — when you take steps to avoid the ten "don'ts" in this chapter. 

Don't Turn l/our Bedroom into l/our Office 

One of the first questions many new home-based business owners ask is this: 
"Where am I going to put my business?" For some people, the answer is easy: 
in an extra bedroom, an underused den, or in the basement. But for many, the 
answer is anything but easy, and finding the space necessary to run their 
business is a challenge. 

One of the first thoughts for new home-based business owners short on space 
is to turn a bedroom into an office. If you're among that group of people, we 
have one word for you: Don't! The information revolution swirling all around 
you — pagers, cell phones, fax machines, voice mail, e-mail, and more — is 
conspiring to take the last vestiges of your privacy and nonwork time, and you 


Part V: The Part of Tens 

need a safe place to get away from it all. Your bedroom is your inner sanctum, 
a refuge from the pressures of work and life where you relax and spend mean- 
ingful, intimate time with your spouse or significant other (or perhaps simply 
with your television set or a good book). 

Don't Use l/our Office as a Family 
Entertainment Center 

^^jftBE^ Peter once put a television in a corner of his office. The reason? To keep up 

with breaking news reports or to relax for a moment in the middle of a project. 
He even went so far as to buy a videogame system as an occasional diversion 
during the workday. 

Big mistake. 

It didn't take long for his three kids to turn that corner into their new, favorite 
hangout. And although Peter loves to spend time with his kids, the sound of 
blaring alien attacks and grand-prix auto races made it more than a little diffi- 
cult to focus on his work. 

Your office is first and foremost for work. It's not for relaxing or socializing 
or hanging out with youngsters. Avoid installing anything that will attract 
leisure-seekers — especially distracting things that make a lot of noise! 

Don't Work Morning, Noon, and Alight 

Most regular businesses have established starting and quitting times, holidays, 
and vacations. These boundaries not only help customers know when they 
can do business with the company, but they also give employees a chance to 
spend time with their families, get necessary errands done, or simply relax 
and recuperate from a hard day's work. 

When your office is in your home, though, it's very easy to fall into the trap of 
not establishing a regular work schedule and then working 24/7/365. Not only 
is this a prescription for burnout, but it is also sure to put a strain on your 
family relationships. You don't want your child saying to you, as Paul and 
Sarah's did early in their home-based careers, "Is this a home or an office?" 

Here are a few tips for avoiding the 24-hour-office situation: 

Chapter 18: Ten Things to Avoid j2 1 

U* Establish regular work schedules — and stick to them! 

is* Build a couple of days off into your workweek. 

u* Avoid working holidays. 

*<* Set aside sufficient time for yourself and your family. 

v* Take plenty of breaks during the course of the workday — and don't 
forget to take time for lunch! 

Don't Allou/ Paperwork and Office 
Equipment to Take 0</er \lour Home 

Chances are you'll need more and more space as your business grows. Rather 
than allow your office stuff to take over your home, blurring the boundaries 
between your work life and your personal life, find other storage options. 

If you have a garage, attic, or basement, consider boxing up infrequently used 
files and putting them in long-term storage. Go through them periodically, 
and throw out the paperwork and files you no longer need. There probably 
isn't too much that you've absolutely got to retain for more than four or five 
years; tax records and contracts are some things that you should hang onto 
for a while. Sell or donate obsolete or unused equipment. Use space-saving 
storage systems, and if you need help, consult a professional organizer. 
Check out Chapter 14 for more solutions you can put to use right away. 

Don't Let Housework or Hobbies Distract 
\lou from Getting \lour Work Done 


Peter's cable modem is always hooked up to the Internet, and he finds him- 
self constantly fighting the urge to jump online and check the latest news on or see how his bids (for more guitars, of course) are faring on eBay. 
Sometimes he beats the urge, and sometimes it beats him. 

Left unchecked, distractions can negatively impact your productivity and effi- 
ciency. Take regular breaks during the course of the workday — at least a few 
minutes off every hour — but don't let your breaks stretch into long periods 
of playtime that you had planned to use for work. 


Part V: The Part of Tens 

Don't Fill \lour Cabinets and 
Refrigerator u/ith Junk Food 

When you work at home, you've got a virtual treasure trove of food just a few 
steps away in the kitchen. This constant temptation can distract you from 
your work and cause you to put on unwanted pounds. If you want to remain 
feeling and looking your best, avoid the temptation to fill your cabinets and 
refrigerator with unhealthy snacks. Instead, keep lots of healthy ones close 
at hand, such as: 

u* Fruit, including bananas, grapes, oranges, and apples 

*<* Chopped vegetables, such as carrots, celery, and broccoli 

v* Salads 

*<* Low-fat trail mixes or party mixes 

w* Smoothies and fruit shakes 

Make your home office a junk-food-free zone. If you don't, you may soon find 
yourself shopping for a new wardrobe. And here's a little secret: Your new 
wardrobe is not going to be tax-deductible! 

Don't Expect Business to Come to \lou 

To be successful in your home-based business, you have to be proactive in 
developing a marketing mindset. Even the world's largest, most well-known 
companies have to spend millions of dollars each year to keep themselves in 
front of their potential customers and explain why people should buy their 
products or services. Companies like General Motors, Pfizer, and McDonald's 
have huge advertising budgets. You can bet they don't wait for business to 
come to them; they're out there every day of the week seeking it out. 

Here are some tips for getting into a marketing mindset. Take a look at 
Chapter 4 for further details. 

W Regularly think about how to get the word out about your business. 

u* Make a commitment to invest your time, energy, and money in marketing 
your business (and then do it!). 

u* Make personal contacts though direct solicitation, networking, speeches, 
and so on. 

Chapter 18: Ten Things to Avoid 3^*3 

v* Get others to talk about you through such avenues as referrals, publicity, 
radio, TV, and Internet forums. 

V Show what you can do with business cards, audiotapes, photos, portfo- 
lios, and so forth. 

bon't Expect to Be an Overnight Success 

Some organizations recruit people to start home-based businesses using 
"proven" systems, especially multi-level marketing firms and companies that 
tell you that you'll get rich stuffing envelopes for them. They make it sound 
like you'll be rolling in cash within weeks or months. If this were really the 
case, every home-based business would be a certified cash machine. 

In reality, building a business that will be profitable and survive over the 
long run takes a lot of hard work, and it takes a lot of time. Sure, there are 
occasional exceptions, but most every business that is a success today went 
through years and years of often grueling work to get there. If you work hard, 
you can turn your business into a success — but not overnight. 

Don't Gi(/e In When Someone Tries to 
Occupy l/our Precious Working Time 

One of the hardest things that many new home-based business owners face is 
getting people to understand that just because they are working at home, this 
doesn't mean that they are available to pick up friends' kids at school, chat for 
hours on the phone, or join folks at the local bar for a drink. Some people seem 
to believe that anyone who is at home wants visitors to drop in and stay a while. 


You can't get anything done if that's the way you do business. So what to do? 
Be assertive with your visitors and let them know that although you would 
love to sit around and talk all day, that's just not going to pay the bills. At the 
same time, tell them when you will be free to spend time with them. You don't 
want to hurt anyone's feelings, but your friends and relatives have to under- 
stand that when you're in your home office, you're working just as hard as if 
you worked in a big office tower downtown. 


Part V: The Part of Tens 

Don't Expect to Work Effectively 
With Children Underfoot 

You can run a thriving home-based business with young kids around. What 
you can't have, though, are kids constantly underfoot and interrupting your 
ability to work and communicate clearly with your customers. Although being 
in closer proximity to your family is a real plus of having a home-based busi- 
ness, you must ensure that your business doesn't suffer unduly as a result. 


Depending on the age of your children, you're likely to need some child-care 
help. In addition, don't let children play in your office if you don't want them 
to use your office as a playroom when you're not there. And for safety's sake, 
avoid keeping items that pose a danger when kids are reaching or running, 
including furniture with sharp edges that could cause running children to 
seriously injure themselves. 

Chapter 19 

Ten Myths about Working 
from Home 

In This Chapter 

Debunking myths about home-based businesses 
Understanding what working from home is all about 

There are many myths floating around about home-based businesses. No 
doubt you've heard some of them. You may even believe some of them. 
Regardless of what you may or may not have heard, the simple fact is that 
millions of people are making home-based businesses work for them, proving 
that the vast majority of home-based business myths are false. Perhaps you'll 
prove them wrong, too. 

Here are some of our personal favorites. 

\lou Hatfe to Be a Salesperson 
to Be Successful 

Home-based businesses come in all sizes, shapes, and flavors. While plenty of 
home-based sales opportunities exist — selling cosmetics and telemarketing, 
for example — that kind is just a small percentage of the entire universe of 
home-based businesses. Consider the following nonsales businesses and 
careers that can be done from home: 

u* Accountant 
*«* Organic farmer 
W Caterer 


Part V: The Part of Tens 


i^ Personal fitness trainer 
v Income tax preparer 
*<* Web-site designer 

In each case, you could build a successful business with little or no sales 
experience. By doing great work or creating the best products, your first cus- 
tomers will tell their friends and associates, who will then tell their friends 
and associates. Of course, not everyone is a star. If you're not tops in your 
field, no matter your personality type, you can find ways other than directly 
selling to market yourself, as Paul and Sarah (and coauthor Laura Clampitt 
Douglas) describe in their book Getting Business to Come to You (Putnam 
Publishing Group). 

Although being a good salesperson can be an asset to getting your business 
off the ground, it is by no means an indicator of your ultimate success. 

l/ou Can't Work With Kids at Home 

Without a doubt, kids do put their own unique demands on a home-based 
business. But the belief that you can't work with kids at home simply isn't 
true. When everything works the way it should — and it can — nothing beats 
working from home, really being a part of your family, and getting to know your 
kids far better than most working parents can ever hope to. And for many 
individuals who start home-based businesses, being close to their families 
while making money is what it's all supposed to be about. 

So how can you do it? Here are a few tips: 

| j>* Find a location for your office that's flexible — one where you can shut 
out all outside distractions when necessary or monitor your young chil- 
dren, if you desire. 

V Set a regular business schedule — one that accommodates the needs of 
your children but that your customers and clients can rely on. 

V Ask for extra help from your spouse or relatives, especially for those 
first few years before your children enroll in school. 

u* Bring a babysitter into your home during working hours. Four hours a 
day can keep the insanity away. 

Chapter 19: Ten Myths about Working from Home 3^- / 

You can work with kids at home; thousands of home-based businesspeople 
(including Peter, with his three busy kids) prove that fact every day of the 

i/ou'tt Get Rich Quick 

This myth really brings smiles to our faces. Starting a home-based business 
is not the same as buying a lottery ticket and hoping your numbers come up. 
A home-based business is like most businesses — it takes a lot of hard work 
and no small amount of time to build sufficient income to make a full-time 

^jjMNG^ Unfortunately, the world of home-based business is rife with all kinds of get-rich- 

quick come-ons, blue-sky promises, and overpromised-but-underperforming 
"opportunities." Our advice is to ignore the persistent drumbeat of the less- 
than-ethical sellers of promised riches and focus on working hard to create a 
business where you can do what you love, serve your customers, and make 
money at the same time — for the long term, not overnight. 

For the latest home-based business opportunities, take a look at Chapter 3. 

\lou Can't Make Any Money 

Money magazine commissioned a study of the earnings of home-based busi- 
nesses in 1996 and found that 20 percent of home businesses reported gross 
business incomes between $100,000 and $500,000 a year. Similarly, when Paul 
and Sarah and Lisa Roberts did a nationwide survey in preparing their book 
The Entrepreneurial Parent in 2001, they found that while over half of the over 
600 respondents worked fewer than 40 hours a week, one in seven claimed 
earnings of over $100,000 a year. Most recently, the research firm IDC found 
the average income for income-generating home office households to be 
$63,000 a year. 

Can you make any money with a home-based business? The answer is an 
unequivocal yes! How? The key is to provide something people will pay for 
and then pour your heart and soul into it. 


Part V: The Part of Tens 

Home-Based Businesses 
Aren't Reai Businesses 

What is a business? According to Webster's New World Dictionary, a business 
is "a commercial or industrial establishment; store, factory, etc." Today, a 
commercial or industrial establishment can be found anywhere, from tradi- 
tional storefronts and mini-malls to suburban basements and urban lofts. 
Real businesses aren't defined in terms of how many cash registers they have 
or whether they're located in a shopping center or mall. Real businesses are 
measured by the attitudes of those people who own and run them, and by their 
results. In fact, the term "brick and mortar" had to be coined to distinguish 
traditional storefront businesses from the growing number of home-based 
and virtual ones. 

The fact is, home-based businesses are just as real as any other. If you don't 
believe it, ask any home-based business owner who is making enough money 
to be his own boss and follow his dreams. 

Home-Based Businesses Are Cheap 

Sure, some home-based businesses can be started on a shoestring, using 
tools and equipment that you might already have (a phone, a computer, 
wrenches, and so forth). But some do require a substantial investment of 
both time and money to get off the ground. Here are some startup estimates 
for a few types of home-based businesses: 

f Computer consultant: $4,700 to $12,050 

V Gift-basket business: $2,655 to $9,770 

(-" Home inspector: $4,925 to $12,600 

u* Medical transcription service: $2,670 to $8,700 

W Image consultant: $3,080 to $9,650 

As you can see, even at the bottom end of their ranges, starting some kinds 
of home-based business — while usually not as costly as a car — is not an 
inexpensive proposition. In fact, it can be quite the opposite. If your primary 
reason for starting a home-based business is because you think you can make 
a lot of money for little or no investment, you will want to select a type of 
business that doesn't require much cash to get off the ground. 

Chapter 19: Ten Myths about Working from Home J2y 

But if you buy a franchise; start a business that requires significant training, 
such as medical coding or information brokering; or begin one that requires 
special equipment, such as mobile pet grooming or medical transcription, you 
may need to invest $10,000 to $20,000 or more. Even businesses with low entry 
costs require you to cover your cost of living — rent, food, health insurance — 
until you generate enough revenue to pay yourself. This can take months or 
sometimes years. 

It's a good rule of thumb to expect your startup costs to be three times what 
you calculate them to be. 

There's No Going Back 


Here's another popular — but patently untrue — myth about home-based 
businesses: After you get out of the regular 9-to-5 world of working for some- 
one else and start your own business, you can never go back. Indeed, many 
potential home-based businesspeople decide to defer or even forget about 
their plans because they're afraid that if they leave the regular world of work, 
they won't ever get another job. 

The truth is that if for some reason your home-based business doesn't work 
out, you always have the option of returning to the good-old 9-to-5. In fact, 
depending on the kind of home-based business you start and the amount of 
experience and clients you gain, you may find yourself in even more demand 
than before you started your own business. 

If \lou're at Home, l/ou 
Must Not Be Working 

We are convinced that every home-based business owner feels the effects of 
this myth from time to time. Because you're working at home — and not in an 
office or store or workshop — you're not really working at all. But as anyone 
who works at home will tell you, nothing could be farther from the truth. 

That fact still doesn't stop your friends, relatives, and acquaintances from 
calling on the phone, visiting and carrying on as though you had nothing 
better to do all afternoon than talk, talk, talk. If you find that people don't 
believe that you're working when you're at work in your home-based busi- 
ness, give these ideas a try: 


Part V: The Part of Tens 

is* Set regular business hours, and let all your friends, relatives, and 
acquaintances know what they are. 

*«* Set up separate phone lines for your business and your home. Answer 
only your business line during your regular business hours. 

i^ Don't fall into the trap of taking on people's errands during your work- 
day just to be nice. This means not agreeing to babysit someone's kids 
or pick them up from school every day! 

*<* Don't be shy! Be polite, but firmly let your nonbusiness callers know that 
you're busy and that you'll get back to them when you take a break or 
after work. Remember: Time is money! 

The sooner you treat your home-based business like the business it is, the 
sooner everyone else will. 

\/ou Can Write Off Etfevythinq 

This one makes us laugh, but unfortunately, it's an all-too-common myth. 
Sure, being able to write a variety of expenses (including a home office) off of 
your taxes is one of the great things about having a home-based business, but 
there are limits. You can write off business-related travel, computer purchases, 
postage, and office supplies, and you may be able to deduct a prorated share 
of your rent or mortgage expenses (see Chapter 10). 

But one thing is for sure — you can't write off everything! That means you 
can't deduct that trip to a local tavern with your pals to watch "Monday Night 
Football." You can't write off that flashy new car you bought for your spouse. 
And you definitely can't deduct the timeshare Maui condo. 

If you're especially excited about the prospect of having a home-office deduc- 
tion on your taxes, be sure to consult a good tax accountant or CPA first. 
She will be able to explain exactly what expenses you can and can't legally 
deduct, and guide you through the process in a way that will keep you and 
your business out of trouble. 

Chapter 19: Ten Myths about Working from Home JJ 7 

\lou Can Run around in \lour 
Pajamas Alt bay Long 

Actually, this one isn't a myth. In many cases, you can have a home-based 
business and work all day in your pajamas or bathrobe, and no one would be 
the wiser. It's really up to you — what you're most comfortable wearing and 
what's appropriate for the kind of business you've chosen. If your home- 
based business is a cleaning service, and you spend a lot of time at customer 
sites, pajamas probably aren't appropriate, much less comfortable. But if you 
provide bookkeeping services and rarely meet with clients at your work site, 
pajamas may work out just fine. Name another business that allows you the 
freedom to do that! 

Long story short, it's really up to you — you're the boss, and you get to make 
the rules! (Which is exactly why so many people establish their own home- 
based businesses.) 


Part V: The Part of Tens 

Chapter 20 

Ten Things to Do if Times 
Get Tough 

In This Chapter 

Finding ways to cut expenses and manage cash flow 
Communicating with customers and offering special promotions 
Getting customers to pay their bills 

J\l° one ever saic ^ ^ at startm § an d operating a home-based business — and 
# w making a profit — was easy. Although failure rates for home-based busi- 
nesses aren't nearly as bad as many have been led to believe (see Chapter 6 
for details), more than a few give up every year. Why? Because even the best 
of plans sometimes go awry, if only for a short time. Due to your business's 
inherent smallness, you may not have enough clients to manage the financial 
roller coaster that can result when a customer goes bankrupt, puts you on a 
slow-pay plan, or switches vendors. 

Good planning can help you see far enough out on the horizon to anticipate 
the most serious financial shortfalls — and then take steps to avoid them — 
but it is impossible to anticipate each and every bump in the road and miss 
them when they arrive. When that's the case, use the ten tips in this chapter 
to help you weather the storm and emerge stronger than ever. 

Sa</e far a Rainy bay 

Even if you find yourself making a lot of money for some period of time — for 
weeks, or even months — every business owner knows that there are no guar- 
antees, and tough times can be right around the corner. One of the best things 
you can do is put aside money when times are good. Although it's tempting to 
run out and purchase the fastest new computer or a new furniture setup when 
the money is rolling in, first be sure that you set aside cash in your business 
savings account or money-market fund. 


Part V: The Part of Tens 

Here's a goal that will help you weather a storm when it arrives: Build a cash 
reserve sufficient to run the business for a minimum of three months, prefer- 
ably six to twelve months. After you have your cash reserve established and 
funded, go out and buy that fun stuff you've had your eyes on. 

Manage \lour Cash Ftau/ 

Cash flow — more specifically, maintaining a positive cash flow — is by far the 
number-one financial issue facing every small business owner. And if you rely 
100 percent on the proceeds of your home-based business to support you and 
your family or significant other and to pay for health care and other essential 
benefits, without the kind of steady income that a regular job brings, a short- 
fall in cash can quickly bring financial disaster. 

The solution is to manage your cash flow (see Chapter 7), which means make 
a habit of doing the following: 

is* Keep an eye on your net cash flow. List all the cash you expect to receive 
(cash inflows) during a specific period of time, and compare that with 
the cash you expect to pay out (cash outflows) during the same period 
of time. Study this information religiously, at least once a week. Many 
popular business accounting programs, such as QuickBooks, have a 
built-in function for monitoring cash flow. Use it! 

j-** Be proactive in bringing cash into your business as quickly as possible. 

The goal is to be paid as soon as you can after you provide a product or 
service, if not before. Don't sit around waiting for customers to get around 
to paying you; get your money as soon as you can. Try to get paid when 
you deliver your products or services, rather than invoicing your cus- 
tomers after the fact. You can do this by requiring customers to pay by 
credit card or by negotiating advance payments with them. Or simply 
require payment by cash or check upon delivery. If you sell over the 
Internet or through an online-store host (such as Yahoo! Store), most 
customers already expect to pay by credit card. 

is* Pay your bills only when they are due, but in time to avoid interest and 
penalties. There's really no advantage for you to pay your bills before 
they are due. Once you pay, you lose the advantage of having the cash 
in your own bank account. If payment on a vendor invoice isn't due for 
30 days from today, don't pay it tomorrow. Pay it when it is due. The idea 
is to be paid by your clients before you have to turn around and make 
payments to your vendors. By paying as late as you possibly can — while 
still paying on time — you can optimize your cash flow. 

Chapter 20: Ten Things to Do if Times Get Tough 335 

Keep in Touch u/ith \lour Customers 

Business is all about relationships: More than just a few businesses have 
found incredible success because of the close relationships their owners 
have established with their clients and customers. After all, given the 
option, wouldn't you rather work with someone you like than someone 
you don't like? 

When times get tough, your first priority should be to ensure that your cur- 
rent customer relationships are solid. Drop in for a visit, schedule a lunch, do 
whatever you can to keep your relationship on the front burner. And while 
you're busy keeping your relationship active, let your customers know that 
you're actively seeking more work. This gentle reminder that you're out there 
will often lead customers to send more work your way — exactly what you 
need when times are tough! 

Push \lour Clients to Pay Their Bills 

On the long list of things that home-based businesspeople enjoy least about 
their jobs is having to call clients to encourage them to pay their bills. But no 
matter how great your customers are, there are going to be times when you've 
got to do just that. 

So how do you know when payments due to your business are running 
behind? You can figure this out by monitoring receivables — the money 
owed to your company by your clients and customers. QuickBooks and 
other business accounting programs have built in receivables aging reports 
that make the task easy. And when you discover that one of your client's 
payments is overdue, act immediately — especially when the amount owed 
is substantial. 

Here are some tried-and-true ways for collecting your money: 

i<* Call or visit your customer, and ask for payment. The direct approach 
is often the best when it comes to getting customers to pay an overdue 
invoice. Don't simply rubber-stamp a copy of the invoice with a note like 
We value your business — we hope you '11 pay soon or Second notice — we 
would really like to be paid now. Chances are these halfhearted efforts 
will be ignored. You won't be ignored if you make a personal appeal for 


Part V: The Part of Tens 

is* Offer to help. More times than most companies like to admit, a payment 
gets held up because the accounting department loses an invoice, doesn't 
have proof of delivery, or can't find the purchase order that authorized 
the item in the first place. Find out what's holding up payment, and offer 
to assist in getting what the customer needs. 

(^ Asa last resort — and only if you aren't concerned about getting any 
future business from your client — turn the matter over to a collec- 
tions agency. If your client is taking no action to pay you and is ignoring 
your phone calls, take action quickly. Sometimes all the client needs is a 
gentle nudge by a good agency to free up your payment right away. 

Whatever you do, when a payment is late, get on it immediately — don't wait 
for days or weeks (or months!), hoping that it will come in. Keeping the money 
coming in on time should be one of your key concerns, and this task needs 
your immediate attention. 

Minimize Expenses 


When times get tough, you have essentially two ways to hunker down: increas- 
ing the amount of money that comes into your business or decreasing the 
amount of money that goes out (or both). Minimizing expenses is one of the 
quickest ways to help weather the storm, and you should act immediately 
when you go into survival mode. 

Before you buy anything, ask yourself whether you could survive without it 
for a while. Can the expense be deferred for a few days, a few weeks, or even 
a few months? Can you borrow or rent equipment instead of purchasing it? 
Can you barter your services or products in exchange for the products and 
services of other businesses? 

Be careful, however, about exactly what expenses you cut. Do not cut 
expenses that will bring more money into your business; instead, you may 
need to increase them. 

Offer a Special Promotion 


By far the best way to turn things around when you're in tough times finan- 
cially is to bring in more business. Cutting expenses certainly helps, but it is 
not the best long-term solution. The best long-term solution is selling more of 
your products and services. 

Chapter 20: Ten Things to Do if Times Get Tough JJ / 

To quickly generate more business, offer your customers a special offer on 
your products or services — perhaps 10 percent off of all orders during July 
or a two-for-the-price-of-one offer. The exact form of your promotion will vary 
depending on the nature of your business, but you should be clear to your 
customers that they need to act quickly to take advantage of the special offer. 

Alternatively, offer your clients and customers a premium — a value-added 
product or service — for placing an order during a specific period of time. 
For example, every customer who places an order of at least $100 during 
February receives a gift certificate for $10 worth of merchandise or a free 
video. You can offer a special price to customers who are willing to commit 
to a contract. Be creative! 

Subcontract for Others 


Many home-based businesses — especially those with only one employee 
(you!) — are subject to extreme swings in business. One month, the business 
can be overwhelmed with orders; the next month, the phone may never ring. 

That's why you should develop a network of business contacts — perhaps 
other home-based businesses — to subcontract your work out to in times of 
feast and to subcontract work from in times of famine. Sure, it may sound a 
bit strange to turn work over to a competitor, but it actually makes good busi- 
ness sense. The key is for you to remain the primary contact with the client 
and to ensure that the work is of the same high quality that you would insist 
on if you did it yourself. 



Every business has times when business is down. Down times are perfect for 
developing new contacts who may turn into customers or who may refer you 
to future customers. If you still have time left after servicing your current cus- 
tomers, you may consider doing volunteer work in your community. 

Not only can volunteering be a terrific way to put your skills to work for your 
community, but it's also a good way to increase your network of potential 
clients. And as that network expands, so will your future business. Believe 
us, you never know who you'll meet when you volunteer in your community. 
That woman next to you in the soup kitchen may be the president of a local 
bank or the purchasing manager of a large manufacturer. 


Part V: The Part of Tens 


When starting your business, it's not a bad idea to keep your day job — at 
least until your home-based business is generating enough income to allow 
you to pay your bills. But even after your business is established, you may 
find that moonlighting — in the form of a part-time job — offers a number of 
benefits, including the following: 

*-" Creating a steady source of income that you can rely on, independent of 
the ups and downs of your business income. 

u* Providing a range of benefits that your own business does not, includ- 
ing health and dental insurance, life insurance, 401(k), stock options, 
and more. 

U* Being a potential source of work for your home-based business. 

If you do decide to moonlight, be sure you're not taking too much time away 
from your own business — time that you could devote to building higher 
levels of sales or expanding your business. 

Refuse to Give Up! 

When times are tough, you may be tempted to throw in the towel and give up. 
What's much more challenging — but ultimately much more rewarding — is to 
fight for your business and refuse to give up, no matter what. When interviewed 
and surveyed, successful entrepreneurs most consistently attribute their good 
fortune to persistence. 

You can fail only if you allow yourself to do so. By refusing to consider giving 
up as an option, you'll force yourself to focus on doing the things that help pull 
you through your tough times — things like the other nine items on this list. 


•Mum erics • 

5/5/5 approach, marketing, 86 
9-to-5, going back to, 329 
24-hour office, avoiding, 320-321 

accessibility problem, 281-282 

need for, 113, 132 

supervising, 244 

tasks handled by, 242-243 
accounting system, choosing, 117-119 
accounts receivable, 148 
accreditation, child care, 283 
accrual method, 118 
acid-test ratio, 143-144 
address, Internet, 102-103 
ADLs (activities of daily living), 46 

cost of, 71 

franchising agreement, 31 

marketing, 80-81 

success and, 313 

Website, 81, 103 
AFAA (Aerobic and Fitness Association of 

America), 57 
affiliate program, Web site, 97 
Age of Reason (Handy), 52 
agreement, written 

franchising, 31-32 

partnership, 303 

team, 291 
alternative energy installation, 53 
alternative health care, 56 
American Academy of Professional 

Coders, 57 
American Association for Medical 

Transcription, 57 
American Association of Daily Money 

Managers, Inc., 46 
American Express merchant account, 136 

American Leak Detection, 9 
American Society for Training and 

Development, 56 
American Society of Association 

Executives, 94 
American Staffing Association, 239 
Amway/Quixtar, 10, 256 
announcement, 285 

business attitude, 266-267 

clothing, 331 

Web site, professionally-done, 98 
appointment calendar, 277 
appointments, scheduling, 275 
ASIS International, 55 
assessing yourself, 41-42 

balance sheet, 141, 142 

capital, 154 

equity ratios, 143-144 

hobby loss rule and, 195 

as root of new business, 27, 125 

value, placing on company, 306 
assignment of franchise, 32 
assistance, finding, 119-120 
assistant, 289 

association memberships, 91-92 
attention, grabbing with good name, 222 
attitude, business 

appearances, 266-267 

distractions, 271-272, 273 

identity, creating, 266 

importance of, 263-264 

interruptions, 270, 274 

maintaining, 12 

office, managing, 276-277 

personal issues, 264-265 

personal life, separating, 268-269 

priorities, assessing, 279-280 

routines, 274-276 

time, managing, 278-279 
attorneys. See lawyers 
ATTRA National Sustainable Agriculture 
Information Service, 58 


Home-Based Business For Dummies, 2nd Edition 


bidding for work, 51, 87-90 

pricing from, 168 
authority, certificate of, 210 
automobile-restoration business, 229 
avocations. See hobbies 
Avon, 34 


babies, working at home with, 292-293 

baby-sitters. See child care 

bad credit history, fixing, 154-155 

balance sheet, 118, 141-143 

Balloon Wrap, Inc., 10 

bank statements, 139 


loan, obtaining, 152-153, 244-245 

need for, 113 
bankruptcy history, franchisor's, 30 
banks, 244-245 

bargain basement pricing, 169 

for outside resources and experts, 

startup funds, 124 
BarterNews magazine, 250 
Bartlett, Joseph (Raising Capital For 

Dummies'), 126 
Beacon Hill Village retirement 

community, 48 
bedroom offices, 319-320 
benefits packages 

child care, 189 

health care coverage, 177-186 

importance, 175-176 

income protection, 186-187 

life insurance, 187 

problems lining up, 177 

retirement and savings plans, 187-188 

time off, 188-189 
The Best Home Businesses for People 50+ 

(Edwards and Edwards), 45, 61-64 
Best Home Businesses for the 21st Century 

(Edwards and Edwards), 61-64, 233 
Better Business Bureau, 257 
Bezos, Jeff (Amazon founder), 23 

bidding for work 

economic globalization, 51 

Web opportunities, 87-90 
bill payment, pushing for, 335-336 
bill payment schedule, 147-148, 334 
bonus money, 110 
bookkeeping system 

accountant, whether need, 113, 132 

check registers and bank statements, 139 

financial statements, 140-143 

key financial ratios, 143-144 

software, 138-139 
booklet or newsletter, 71 
boot camps, 126 
borrowing money. See loans 

benefits of being, 15 

collaborations, 293 

franchisor as, 33 

independence, assessing own, 41 

judging ability to be, 17 

pitfalls of being, 16 
Bradford, Stuart (business futurist), 48 

scheduling, 274, 289 

teaming up, 292 

business opportunity, 38 

credit card intermediary, 136 
budget, importance of meeting, 90 
building permit, 231 
burnout, 173 

business account, setting up, 133-134 
business attitude 

appearances, 266-267 

distractions, 271-272, 273 

identity, creating, 266 

importance of, 263-264 

interruptions, 270, 274 

maintaining, 12 

office, managing, 276-277 

personal issues, 264-265 

personal life, separating, 268-269 

priorities, assessing, 279-280 

routines, 274-276 

time, managing, 278-279 
business cards, 74 



business community, maintaining 

ties with, 20 
business consultants, 113, 246-247 
business directories, 81 
business hours, 285, 320-321 
business interruption insurance, 117 
business license, 231 
business loans, 152-153 
business opportunity 

credibility and viability, 26 

described, 10-11,38-41 

fraudulent, signs of, 254-255 

support offered, 14 
business plan 

developing, 111-112 

farming out, 128 

loan, obtaining, 152 
Business Plans For Dummies (Tiffany and 

Peterson), 128 
business-to-business collaboration, 77 
buying businesses 

assessing yourself, 41-42 

business opportunity, 38-41 

direct-selling, 34-35, 37-38, 39 

franchises, 28-34 

specializing, 42 

tips to keep in mind, 26-27 
Bygrave, William (entrepreneurship 
expert), 296-297 

C corporation 

accountant, need for, 132 

described, 114 

health insurance, deducting, 185 

taxes, 197, 198, 200-201 

luxury goods, sales of, 59 

maturing population in, 45 

tutoring in, 55 
capacity, loan standard for, 153-154 
capital, loan qualification, 154 

insurance, 117 

tax deduction, 209 
Cardservice International, 10 

career options, tapping new, 26 
cash flow 

advantages of positive, 144-145 

collections, 148-151 

credit cards, benefits of accepting, 134 

financial problems, handling, 334 

kick-starting, 147-148 

loan, qualifying for, 153-154 

payment methods, 146-147 

projections, 118 

success managing, 315 

tracking, 131-132 

transitioning to home-based 
business, 108 
cash method, 118 
Catalano, Frank (Marketing Online For 

Dummies'), 101 
certificate of authority, 210 
certified public accountant (CPA), 243 
Certified Retirement Counselor (CRC), 47 
Certified Senior Advisors by the Society of 

Certified Senior Advisors, 47 
changing direction or moving on, 128-130 
check registers and bank statements, 139 
checks, payment in, 146 
child care 

babies, 292-293 

benefits packages, 189 

finding, 283 

need for, 324 
child support, collecting court- 
ordered, 233 

authors' history of working at home, 8 

babies, working at home with, 292-293 

care, finding, 283 

demands, competing, 282, 284 

demands, handling, 270, 326-327 

interruptions, avoiding, 324 
circulars, 79 

cities, migration to smaller, 48 
cities, regulation by. See local government 
City Care Benefits Plan, San Diego Business 

Improvement District Council, 184 

ability to choose, 15 

diversifying list of, 301 


Home-Based Business For Dummies, 2nd Edition 

client (continued) 

dressing better than, 267 

emergencies, 279 

keeping informed, 316 

long-term business relationships, 
building, 90 

network, judging, 17 

selling list of, 305 
closing business 

percentage that are sound, 16 

when to, 305 
clothing, 331 

COBRA (Consolidated Omnibus Budget 
Reconciliation Act of 1985), 110, 179 
collaborating, 77 
collateral, loan, 154 
colleagues, loans from, 125 

cash flow, positive, 148-151 

financial problems, foreseeing, 335-336 

starting agency, 233 
College for Financial Planning, 47 
commercial cleaning service, 29 
commercial finance companies, 245 
Commoner, Barry (professor), 253 
communication, team, 291-292 
community, maintaining ties with 

business, 20 

outside consultants, 241 

teaming up with family member, 290-291 

distinguishing business from, 70 

monitoring, 169 

researching prices, 164-166 
computer consultant startup estimate, 328 
computer consultants, 52 
computer contractor, 201 

faster, increasing productivity with, 279 

leasing, 145-146 

unnecessary expenses, avoiding, 314 
concentration problems. See distractions 
conditions, loan standards, 154 

prospective investor, 126 

speaking at, 162 
confidence, 265 
connections, maintaining, 20 

Consolidated Omnibus Budget 

Reconciliation Act of 1985 (COBRA), 
110, 179 
consultants, business, 113, 246-247 
consumer finance companies, 245 
consumer products, luxury goods, 59-60 
consumers, credit reports on, 137 
contact information 

capturing from Web site, 103 

offering on Web site, 98 
content, Web site, 97 
continuing education and training, 56 
contractor, independent 

old job, transitioning from, 121 

tax issues, 201-204 
control, desired, 42 

outside services, 239 

trade account, 236 
copyrights, 226-227 

described, 114-115 

image, building, 267 

legal framework, 220-222 

tax status, 199 

taxes, 197 

bartering exchange membership, 250 

collections agency, 150 

corporation, forming, 114-115 

credit card sales, accepting, 135, 136 

direct, pricing and, 159, 161-162 

franchises, 29 

health care coverage, 179, 182-183, 185 

hiring outside consultants, 241 

marketing, 71, 74 

overhead, 160-161 

PayPal, accepting credit cards 
through, 138 

public relations, 76 

sole proprietorship, 218 
counterproposal, 172 
coupon clipping, 253 
courier/messenger service, 237 
court, taking late payers to, 150-151 
coworkers, referrals from, 75 
CPA (certified public accountant), 243 
craft-oriented home businesses, 51 
Craigslist, 71 



Crawford, Char ("Toaster Lady"), 253 
CRC (Certified Retirement Counselor), 47 
credibility, online purchases, 137 

extending to customers, 147, 237 

franchisor's, information about, 30 

personal, qualifying for business loan, 154 
credit card 

balances, paying off, 110 

for business expenses, 133-134 

startup funds, 123, 152 
credit card companies, 245 
credit card sales, accepting 

advantages, 134 

costs, 135, 136 

merchant account, establishing, 135-136 

online sales, 137 

open accounts, 137 

PayPal, 137-138 

ranking as form of payment, 146 
credit reports 

customers, obtaining, 137 

self, obtaining, 154 
credit types, 151-153 
credit unions, 124, 245 
current ratio, 143 
customer service, 167 

ability to choose, 15 

base, building solid, 316 

best, identifying, 65-67 

caring about, 265 

closing business, notifying, 305 

needs, addressing, 67-68 

price limits, assessing potential, 163-164 

referrals, 74-76 

relationships, maintaining in bad 
times, 335 

Web opportunities, 98 


Dahl, Gary (Pet Rock creator), 70 
daily needs of maturing population, 

business opportunities presented 

by, 46 
daily planner, 277 
deadlines, 90, 301,316 
dealer, 38 

death, dissolution of business 

organization, 114, 218 
debit cards, 134, 137 
debts, partnerships, 219 
debt-to-equity ratio, 144 
decreasing prices, 171-172 

employee status, avoiding, 202 

limitations, 330 

taxes, 207-208 
democratization of luxury, 59 

marketing plan, 85 

utilities, living without, 53 
demonstration marketing, 72 
dental coverage, 185 
dependability, 90, 317 
dependent life insurance, 187 
depreciation recapture, 206 
description, company products and 

services, 127 
design, Web site, 99-100, 103 
desire to sell, 41 
desk, cleaning, 276-277 
digital wallets, 137 

direct costs, pricing and, 159, 161-162 
direct mail marketing, 79 
direct marketing, 79-80 
Direct Selling Association, 34, 257 
direction, changing, 128-130 
directory listings 

as alternative to advertising, 71 

association memberships, 91-92 

barter member exchanges, 250 

fees for, 253 

local search engine, 92 

online business directories, 91 

SmartPage, 92 

Yellow Pages, 90-91 

buying businesses, 34-35, 37-38, 39 

described, 10, 26 

fraudulent business opportunities, 
spotting, 256-257 

investigating opportunities, 39 

multi-level marketing, 34, 35 

pros and cons of, 37-38 

single-level marketing, 34-35 
disability grants, 124 


Home-Based Business For Dummies, 2nd Edition 

disability insurance, 176, 186 

credit card, 135 

prices, setting, 173-174 

prompt payment, 148 

in slow periods, 337 
Discover/Novus merchant account, 136 
Discovery Toys, Inc., 10 

business attitude, 271-272, 273 

housework, 321 

pitfall of home-based business, 16 

business opportunity, 38 

multi-level marketing, 35 
diversifying client list, 301 
doctors. See medical billing businesses; 

medical transcription service 
domain names, 96 

Dorotik, Dan (Career Documents resume- 
writing service owner), 23 
Dotster Web hosting service, 100 
double entry bookkeeping, 117-118 
downline, multi-line marketing, 35 

bill payment, pushing for, 335-336 

cash flow, managing, 334 

customer relationships, maintaining, 335 

expenses, minimizing, 336 

moonlighting, 338 

persistence, 338 

planning, importance of, 333 

promotion, offering special, 336-337 

saving for, 333-334 

subcontracting, 337 

volunteering, 337 
dream. See love, doing what you 
dress habits, 267, 331 
drop shipped, 39 
due diligence sites, 258 
Dun & Bradstreet, 137,281 


direct selling potential, 37 
home-based businesses, 327 


merchant or auction/trader, 50 

prices, comparing, 168 
e-checks, 137 
e-commerce Web site 

creating, 101 

payments, making it easy, 98 
economic globalization, 50-52 
economies of scale, 298 
Economy, Jan (medical-billing 

business owner), 22 
Economy, Peter 

children, working with and around, 284 

collection history, 149 

Internet, limiting use of, 321 

Managing For Dummies, 2nd Edition, 300 

mission statement, 127 

part-time startup experience, 315 

Raising Capital For Dummies, 126 

startup story, 13 

workaholism, 288 
edible luxury products, 60 
education, youth and adult, 55-56 
Edwards, Paul and Sarah 

The Best Home Businesses for People 50+, 
45, 61-64 

Best Home Businesses for the 21st Century, 
61-64, 233 

dog training method, 287 

The Entrepreneurial Parent, 327 

Finding Your Perfect Work, 8 

Getting Business to Come to You . . . A 
Complete Do-It-Yourself Marketing Guide 
for Attracting All the Business You Can 
Enjoy, 86, 119,326 

Home Businesses You Can Buy, 33 

history of working at home, 8 

mission statement, 127 

radio show, 81 

Teaming Up: The Small Business Guide to 
Collaborating with Others, 292 
Eidson, Tim and Wendy (Mo Hotta-Mo 

Betta hot-sauce business founders), 23 
Einstein, Albert (scientist), 192 
Elance Select Service provider, 90 
e-learning, 56 
Electrolux, 34 
electronic environment, 49-50 



Electronic Medical Billing Network of 

America, Inc., 57, 58 
electronic organizer, 277 

distracting, 272 

spam, 278 
emergency, client, 279 
employees, hiring 

family members, friends, and 
neighbors, 285 

growing company by, 300 

overwork, ending cycle of, 289 

professional employee organizations, 239 

tax deduction, 209 
employer, before home business 

first client, turning into, 121 

taking business, 121 

working part-time at, 120-121 
enlarging business. See growing business 
entrance, separate, 268-269 
Entrepreneur magazine, 10, 24, 29 
The Entrepreneurial Parent (Edwards and 

Edwards), 327 
envelope stuffing, 253, 323 
Equifax credit reporting agency, 154 

franchising agreement, 31 

leasing versus buying, 145-146 

managing work day, 321 

building, 298 

business loans, obtaining, 152 

owners', on balance sheet, 141, 143 

partners, sharing, 303 

startup investors, 124 
equity line of credit 

risks, 153 

setting up before leaving work, 110 

startup funding from, 125 
errands, taking on, 330 
errors-and-omissions insurance, 116 
estimated taxes, paying, 198-199 

military career and, 36 

taking business from former 
employer, 121 
etiquette, networking, 94-96 
e-wallets, 137 

exchanging links, Web site, 98 
executing marketing plan, 86 
executive summary, marketing plan, 84 
exercise, relieving stress through, 271 
exit strategies 

closing, 305 

merging, 304 

passing along, 304 

retirement, 306-307 

selling, 304 

valuing business, 306 

cash flow, managing, 148 

home-office deduction, 205-207 

minimizing, 336 

payment schedule, 147-148, 334 

prices, setting based on, 158-160, 
170, 171 

unnecessary, avoiding, 314-315 
Experian credit reporting agency, 154 

finding others with, 20 

as indicator of success, 111, 313 

leveraging your own, 238-239 

support services, 238 

developing, 313 

hobby loss rule and, 194-195 

specializing, 42-43 
exporting goods, 232 
extended insurance coverage, 116 


potential for, 16, 40 

rates for companies selected, 26 
Fair Debt Collection Practices Act, 233 
family entertainment center, 320 
family members. See also children; spouse 

direct selling, tiresome nature of, 38 

evaluating, 19 

misunderstanding nature of at-home 
work, 269 

passing business to, 304 

perceptions of, 329-330 

referrals, 75 

startup loans from, 125, 151 


Home-Based Business For Dummies, 2nd Edition 

family members (continued) 

support, evaluating, 18 

teaming up with, 289-294 

truce, instituting, 12 

working time, separating, 323 
farming out business plan, 128 
federal export licenses, 231 
federal government. See U.S. 
Federal Trade Commission (FTC) 

franchise regulations, 30-31 

scams and ripoffs, 253, 257 
fee-for-service health care plans, 178, 


franchises, 29, 33 

scams and ripoffs, 253 

long-term storage, 321 

online messages, 95 
finances, organizing 

accountant, need for, 132 

benefits of, 11, 132-133 

bookkeeping system, 138-144 

business account, setting up, 133-134 

cash tracking, 131-132 

corporate status, 221 

credit card sales, accepting, 134-138 

loans, 151-155 

positive cash flow, building, 144-151 
financial ratios 

current ratio, 143 

debt-to-equity ratio, 144 

quick ratio, 143-144 

ROI, 144 
financial statements 

balance sheet, 141-143 

bookkeeping system, 140-143 

business plan, 127 

income statement, 140-141 

marketing plan, 85-86 
Finding Your Perfect Work (Edwards and 

Edwards), 8 
Fiorina, Carly (Hewlett-Packard CEO), 50 
fire certificates, 231 
fire insurance, 116 

first client, turning old employer into, 121 
fitness trainer/coach, 57 
5/5/5 approach, marketing, 86 


as benefit of working at home, 15 

entrepreneurial success, 296 
flyers, 79 
food permit, 231 
foreign payment services, 258 
forensic counseling, security, 55 
forms, tax, 191-192, 196-198 
franchisees, 14, 29 

benefits, 14, 28-29 

buying businesses, 28-34 

costs, 29 

credibility and viability, 26 

described, 9-10 

franchising agreement, elements of, 31-32 

listings of, 29 

pros and cons, 32-34 

red flags, 255 

startup costs, 329 

UFOC, 30-31 

unique identity, need for, 42 
franchising agreement, elements of, 31-32 

described, 14, 29 

information about, 30 
Franklin, Benjamin, 191 
frauds. See scams and ripoffs 
frequent buyer programs, 236 
fresh start, 26 
friendliness, 297 

direct selling, tiresome nature of, 38 

evaluating, 19 

misunderstanding nature of at-home 
work, 269 

passing business to, 304 

perceptions of, 329-330 

startup loans from, 125, 151 

truce, instituting, 12 

working time, separating, 323 
FTC (Federal Trade Commission) 

franchise regulations, 30-31 

scams and ripoffs, 253, 257 
Fuld & Company business intelligence 

service, 166 
fun factor, 297 
furniture, child-friendly, 324 




Gallup Organization, 281 

gap insurance, 146 

geriatric care management, 47 

get-rich-quick schemes, 327 

Getting Business to Come to You . . . A 

Complete Do-It-Yourself Marketing Guide 
for Attracting All the Business You Can 
Enjoy (Edwards and Edwards), 86, 
gift-basket business startup estimate, 328 
giveaways and contests, 80 
goals, management strategy for achieving 

business plan, 127 

successful entrepreneurship, 297 
going rate pricing, 169 
Goodman, Howard (Seven Steps to 

Successful 800, Radio and TV Direct 
Response Campaigns), 238 

Group directory site, 94 

search for business opportunities, 10 
graphics, 95. See also logo 
Graphics Artists Guild, 91-92 
group esprit de corps, 20 
growing business 

approaches, 299-300 

benefits of, 298-299 

defining success, 296 

exit strategies, 304-307 

importance of, 295-296 

keys to success, 12-14, 296-297 

partners, bringing in, 302-304 

personal decision, 300-302 

upside and downside of, 297-298 
gyms and health clubs, 185 


Halpern, Steven (Productivity album 

creator), 275 
Handy, Charles (Age of Reason), 52 
health care business 

in-home, 46 

rising demand and cost, 56-58 
health care coverage 

costs, cutting, 185 

dental, 185 

fee-for-service and indemnity health care 
plans, 178, 179-180 

gyms and health clubs, 185 

HMO, 178 

managed care plans, 180-184 

obtaining, 117 

options, 11, 177, 179 

transition to home-based business, 108 

vision, 185 
health clubs, 185 
health maintenance organizations (HMOs), 

178, 181-183 
health savings accounts (HSAs), 185 
Hewlett-Packard, 23, 281 
HIPAA (Health Insurance Portability and 

Accountability Act of 1996), 58 
hiring. See employees, hiring; outside 

resources and experts 
Hitchcock, David (Patent Searching Made 

Easy), 129 
HMOs (health maintenance organizations), 

178, 181-183 

distracting, 321 

overwork cycle, breaking, 289 

tax issue (hobby loss rule), 193-196 
holding line on pricing, 172 
holidays, 189, 321 

home and real estate businesses, 49 
Home Businesses You Can Buy (Edwards 

and Edwards), 33 
home equity line of credit 

risks, 153 

setting up before leaving work, 110 

startup funding from, 125 
home inspector startup estimate, 328 
home luxury products, 60 
home occupation permit, 231 
Home Video Studio, Inc., 10 
home-based business 

accessibility problems, 281-282 

assessing yourself, 41-42 

business opportunity, 38-41 

buying, tips to keep in mind, 26-27 

connections, maintaining, 20 

definition of, 8 

direct-selling, 34-35, 37-38, 39 

franchises, 28-34 

growing, 12-14 


Home-Based Business For Dummies, 2nd Edition 

home-based business (continued) 

military career, compatibility with, 36 

money, managing, 1 1 

number of, 281 

pitfalls, 16 

reasons to start, 14-15 

specializing, 42 

starting from scratch, 22-26 

top ten opportunities, 22 

transitioning, 16-20 

type, choosing, 9-11 
home-office deduction, 205-206, 330 
hosting service, Web site, 100 
hours, business, 285, 320-321 
household help, 269. See also child care 
household repair business, 71 
housework, 321 

HSAs (health savings accounts), 185 
Human Resources Kit For Dummies 
(Messmer), 185 


IDC/Link survey, 111 
identity, creating, 266 
ignoring interruptions, 270 

business attitude, 266-267 

clothing, 331 

Web site, professionally-done, 98 
image consultant startup estimate, 328 
incentives, 80 

bartering as, 250 

business option, choosing, 41 

direct selling, 38 

diversifying client list, 301 

flow, deciding when to leave full-time 
job, 13 

hobby loss rule and, 195 

protection in benefits package, 186-187 

ROI, 144 

statement in business plan, 140-141 
increasing price, 170-171 
indemnity health care plans, 179-180 
independence, assessing own, 41 
Independent Computer Consultants 
Association, 52 

independent contractor status 

old job, transitioning from, 121 

tax issues, 201-204 
independent sales organization (ISO), 136 
inheritance, 124 
in-home care, 46 
innovation, 297 

Institute for Management Consultancy, 246 

acquiring, 116-117 

agents and brokers, 113, 248-249 

gap, 146 
intellectual property, 225 
interest and penalties, overdue bills, 334 
interim or contract executives, 52-53 
Internal Revenue Service. See IRS 
International Franchise Association, 28 
International Reciprocal Trade Association 

(IRTA), 250 

distractions, 272, 321 

network marketing, 259 

patent search, 129 

publicity, 78 

scams and ripoffs, 251, 258 
interruptions, handling with good business 

attitude, 270, 274. See also children 
invention development company, 129 

bookkeeping method, choosing, 118 

direct-sales scams, 257 

finding online, 126 

pros and cons of using, 124 

errors, 149 

payment, pushing for, 335-336 

scheduling, 148 
IRS (Internal Revenue Service) 

amount owed, 199-201 

corporate status, 114-115, 199, 220-221 

deductions, other than home-office, 161, 

forms and schedules, 191-192, 196-198 

health insurance, deducting, 185 

hobby loss rule, 193-196 

home-office deduction, 205-206 

independent contractor status, 201-204 



legal issues, 232 

payment schedule, 198-199 

saving money on, 209 

software to file returns, 210 

who has to pay, 11, 193-198 

withholding, reducing, 125 
IRTA (International Reciprocal Trade 

Association), 250 
ISO (independent sales organization), 136 

Jani-King, 29 

Javed, Naseem (naming consultant), 223 

jeans designer, 86 

job, existing 

leaving, timing, 13-14, 108-109 

maintaining during startup of home- 
based business, 18 

referrals from, 75 

skills, transferring, 24-25 

steps to take before leaving, 109-110 

success, keeping, 315 
job-at-home frauds, red flags indicating, 

Jones, Jerry (remodeling contractor), 204 
junk food, 322 
junk mail and e-mail, 278 


Kauffman, Ewing Marion (founder of 
Marion Laboratories, Inc.), 23 

Keogh, 188, 209 

Kinderdance International, 9 

Kirby, 34 

Kleppinger, Sandy (online auction business 
owner), 168 

benefits of consulting, 112-113 
merchant account agreement, 
reviewing, 136 

scams and ripoffs, red flags 
indicating, 254 

tasks handled by, 241-242 
layout, office, 277 
learning business, 24 

leasing versus buying equipment, 145-146 
legal issues 

bartering, 250 

business form, choosing, 216-217 

copyrights, 226-227 

corporation, 220-222 

franchising, 30-32 

importance, 215 

LLC, 220 

name registration, 222-224 

partnership, 218-219 

patents, 227-228 

potential problems, 12 

sole proprietorships, 217-218 

tax requirements, 232 

trademarks, 225-226 

zoning, licensing, and permits, 228-232 
legal structure, choosing best, 113-115 
Leonard, Robin (Money Troubles: Legal 

Strategies to Cope with Your Debts), 155 
letterhead, 74 
letters to the editor, 78 
liability insurance, 116 
licensee, 39 
licensing and permits, governmental, 

life insurance 

benefits packages, 187 

startup funding from, 124 
lifestyle, checking, 300 
limited partnership, 114, 219 
line of credit, 153 
living off the grid, 53 
LLC (limited liability company) 

described, 114 

legal framework, 220 

taxes, 198 

bad credit history, fixing, 154-155 

business plan, writing, 128 

credit types, 151-153 

jj(/ Home-Based Business For Dummies, 2nd Edition 

loans (continued) 

equipment, 145-146 

obtaining, 153-154 

transition to home-based business, 
109, 126 
local government 

government job scams, 253 

rules and regulations, 115-116 

sales tax, 210-211 

zoning, 229-230 
local search engine, 92 
local seed-money funds, 125 

copyright, checking, 115, 223 

fake, 258 

identity, creating, 266, 267 
Longaberger Company, 10 
long-range goals, self-assessment, 42 
long-term file storage, 321 
long-term relationship, building healthy, 


pricing, 159, 162-163 

tax rules, 195 
love, doing what you 

choosing opportunities based on, 61 

client and customers, evaluating their 
attitudes, 68 

option, choosing, 41 

success, 28, 312 
low-ball clients, 173 
low-margin work, 173 
luxuries as necessities, 59-60 


magazine articles, 78, 250 
mailing list, 76 
mail-order business 

opportunities, 39 

order-taking service, 238 
malicious mischief insurance, 116-117 
managed care plans, 180-184 
management strategy for achieving goals 

business plan, 127 

successful entrepreneurship, 297 

Managing For Dummies, 2nd Edition 

(Economy and Nelson), 300 

Manufacturers' Agents National 

Association (MANA), 86 

manufacturer, 39 

molecular, 52 
MAP (merchant account broker), 136 
Margolis, Matthew (The Ultimate Guide to 
Dog Training: How to Bring Out the Best 
in Your Pet), 287 
Marion Roussel Hoechst, 23 

business plan analysis, 127 

conditions, loan standards and, 154 

existence of, ensuring, 26 

growing business, 301 

prices, testing, 170 

readiness for your product or 
service, 129 

targeting, 68-69 
market value of firm, 306 

advertising, 80-81 

approaches, 72 

collaborating, 77 

customer needs, addressing, 67-68 

customers, identifying, 65-67 

direct, 79-80 

discount pricing, 173 

needs, filling, 11, 68 

niche, carving out, 70 

plan, developing, 83-86, 119 

proactive stance, importance of, 322-323 

public relations, 76, 78-79 

referrals, getting, 74-76 

repair business example, 71 

Web sites and e-commerce, 81-83 

word of mouth, 73-74 

WPWPF principle, 68-69 
Marketing Online For Dummies (Smith and 

Catalano), 101 
marketing plan 

developing, 119 

executing ideas, 86 

financials, 85-86 

marketing strategies, 85 

objectives, 84 

overview, 84 

questions to answer, 83-84 

situation analysis, 84-85 

Index 351 

Mary Kay, Inc., 10 
maturing population, business 
opportunities presented by 

daily needs, 46 

demographics, 45 

professional services, 47 

special services, 47-48 
Matusky, Gregory (franchising expert), 

Mayer, Jeffrey (Time Management For 

Dummies'), 279 
McDonald's franchise initial fee, 29 
mechatronics, 51-52 
media, best business, 165 
mediator, late payment, 150 
medical billing businesses 

opportunities for, 22, 57, 58 

promoting, 67 
medical coding, 57 

medical savings accounts (MSAs), 180 
medical transcription service 

as good opportunity, 51, 57 

startup estimate, 328 
Medicare tax, 192 
members, LLC, 114,220 
merchant account, 135-136 
merchant account broker (MAP), 136 
merging, 304 
Merry Maids, 9 
Messmer, Max (Human Resources Kit For 

Dummies'), 185 
microloan programs, 125 
migration south and to smaller places, 

military career, compatibility with, 36 
mini-workshops or seminars, 71 
mission, as root of new business, 27 
mission statement, business plan, 127 
molecular manufacturing, 52 
Money magazine, 327 
money management as business 

opportunity, 46 
money, managing for business. See 

finances, organizing 
Money Troubles: Legal Strategies to Cope 

with Your Debts (Leonard), 155 
moonlighting, 338 

moral support and positive peer 

pressure, 20 
moving on, 128-130 

moving work to ease concentration, 274 
MSAs (medical savings accounts), 180 
multi-level marketing 
described, 10, 34, 35 
fraudulent business opportunities, 

pyramid schemes, 35 
recruits, competition for, 37 
Mytinger, Lee (California Vitamins 
founder), 35 


NACCRRA (National Association of 

Child Care Resource and Referral 

Agencies), 283 
business accounts, 133 
choosing, 115 

registration, legal issues, 222-224 
National Alliance for Caregiving, 46 
National Association for Home Care and 

Hospice, 46 
The National Association of Professional 

Employer Organizations, 239 
National Association of Professional Pet 

Sitters, 46 
National Association of Senior Move 

Managers, 47 
National Association of Trade 

Exchanges, 250 
National Consumer League's National 

Internet Fraud Watch Information 

Center, 257 
National Electronic Billers Alliance 

(NEBA), 58 
National Foundation on Consumer 

Credit, 155 
National Tutoring Association, 55 
Navy career, home-based business 

compatible with, 36 
NEBA (National Electronic Billers 

Alliance), 57 
Nelson, Bob (Managing For Dummies, 2nd 

Edition), 13, 300 

jf}2 Home-Based Business For Dummies, 2nd Edition 

net cash flow, 334 
network marketing 

fraudulent business opportunities, 

Internet, 259 

business-to-business collaboration, 77 

etiquette, 94-96 

judging, 17 

online forums, 93-94 

partners, finding, 122 

social networking sites, 94 

word of mouth marketing, 73 
new and different jobs, 25-26 
newsletters, 80 

best to read, 165 

publicity, getting, 78 
niche, carving out, 42, 70, 296, 313 
Nikken, Inc., 10 
Nine Fs of entrepreneurial success, 

9-to-5, going back to, 329 
noise, missing, 275 
number, sales tax, 210 
Nutrilite vitamin supplements, 35 

objectives, marketing plan, 84 
odds of success, 111 

in bedroom, 319-320 

business attitude, 276-277 

cleaning, 277 

soundtrack, creating, 275 

supply, trade accounts, 236 

tax deduction, 205-206, 330 
office equipment repair, 236-237 
offshoring, economic globalization and, 

off-site child care, 189 
old job 

first client, turning into, 121 

taking business, 121 

working part-time at, 120-121 
online business directories, 91 
online forums, 93-94 
online payment, 147 

online sales, accepting credit cards, 137 

online search, business opportunities, 10 

on-site child care, 189 

open accounts, accepting credit card, 137 


economic globalization, 50-52 

education, youth and adult, 55-56 

electronic environmental, 49-50 

health care, rising demand and cost, 

living off the grid, 53 

luxuries as necessities, 59-60 

maturing population, 45-48 

migration south and to smaller places, 

security needs, rising physical and 
property, 54-55 

self-employed, growth in ranks of, 52-53 
order-taking service, 238 
organic food, growing, 58 
organizations, speeches to, 78 
outside resources and experts 

bartering for, 249-250 

benefits of hiring, 235 

bookkeeping method, choosing, 117-118 

business plan, writing, 128 

consulting, 112-113 

counseling couples in partnerships, 294 

lawyers, accountants, and other 
professionals, 240-249 

public relations, 76 

support services, 237-240 

trade accounts, establishing, 236-237 

Web site, 99-100 

described, 14 

online bidding, 89 
overhead costs, 159, 160-161 
overnight success, 323 
overview, marketing plan, 84 

cycle, breaking, 289 

warning signs, 288 
owners' equity, 141, 143 

• P • 

P2P (person-to-person) e-mail 
payments, 137 

index 353 

Packard, David (Hewlett-Packard co- 
founder), 23, 281 
paperless office, advantages of, 277 
paperwork, 321 
Pardon My Planet cartoon, 55 
parents with children at home. 

See children 

bringing in, 302-304 

startup funding, 122 

described, 113-114 

legal framework, 218-219 

taxes, 197, 198, 200 
part-time start 

direct-selling company on the side, 256 

transition to self-employment, 
108-109, 120 
passing along business, 304 
passion, as root of new business, 27 
past-due notice, 149-150 
Patent and Trademark Depository Library 

Program (PTDLP), 129 
Patent It Yourself (Pressman), 129 
Patent Searching Made Easy 

(Hitchcock), 129 

franchises, 31 

legal issues, 227-228 

obtaining, 129 
pay-as-you-go tax system, 198 
payment methods 

cash flow, positive, 146-147 

upfront, 147 

Web site, 98 
payment schedule 

online bidding for work, 89 

taxes, 198-199 
PayPal, 137-138 

pay-per-click search engines, 97 
perceptions, friends and relatives, 329-330 

sales tax, 210 

usage, 231 
Perot, Ross (former presidential 

candidate), 50 
persistence, 338 

personal care luxury products, 60 
personal contact marketing, 72 

personal issues 

business attitude, 264-265, 268-269 

growing business, 300-302 

pricing, 172 
personal loans, 152 
personal pleasure or recreation, 196 
personal-chef services, 46 
personality, online messages, 96 
person-to-person (P2P) e-mail 

payments, 137 
person-to-person sales. See direct-selling 
Pet Rock, 70 
pet services, 46 
Peterson, Steven (Business Plans For 

Dummies'), 128 
pets, coexisting with business, 286-287 
pharmaceutical salespeople, 67 
photography business, 82 
P&L (profit-and-loss) statement, 118, 

planning. See also business plan 

financial problems, foreseeing, 333 

marketing, 83-86 

retirement, 11, 177 
police permit, 231 
portfolio, freelance bidding site, 89 
positive cash flow, building, 144-151 
positive experience, judging, 290-291 
PPOs (preferred provider 

organizations), 184 
The Practical Dreamer's Handbook: Finding 
the Time, Money, & Energy to Live the 
Life You Want to Live (Tarcher), 307 
premium orders, 337 
premium pricing, 169 
press releases, 78 

Pressman, David (Patent It Yourself), 129 

bargain basement, 169 

best strategy, 158 

bidding for work online, 89 

competition, researching, 164-166, 169 

decreases, 171-172 

direct costs, 161-162 

discounting, 173-174 

expenses, 158-160 

going rate, 169 

health insurance, accounting for, 176 

holding line, 172 


Home-Based Business For Dummies, 2nd Edition 

pricing (continued) 

importance of effective, 11, 157 

increases, 170-171 

offshore competition lowering, 51 

online auctions as resource, 168 

overhead, 160-161 

potential customers, assessing, 163-164 

premium, 169 

profit, 162-163 

salary, 160 

splitting difference, 169 

startup, 168-169 

success, 314 

value, creating, 166-167 
primary care physician, 181 
printer business, trade account with, 236 
printer, mechatronics, 51-52 

business attitude, 279-280 

reviewing, 278 
privacy issues, medical billing, 58 
proactive marketing, 322-323 

clients, alerting to potential, 90 

overall business, avoiding, 11-12 
product liability coverage, 116 
product vendors, 236 
products. See also inventory; pricing 

business plan description, 127 

direct-selling, network marketing, multi- 
level marketing red flags, 256 

online purchases, confidence in, 137 
professional courtesy discounts, 171 
professional employee organizations, 239 
professional liability insurance, 116 
professional services 

corporation status and taxes, 115 

maturing population, business 
opportunities presented by, 47 
profile, freelance bidding site, 89 

growing companies, 298 

hobby loss rule, 193, 196 

pricing, 159, 162-163 
profit sharing, 110 
profit-and-loss (P&L) statement, 118, 

projected revenues, 84, 86, 127 


success and, 313 

Web site, 102 
promotion, offering special, 336-337 
proposals, business consultant, 246 
propreneurs, 299 
PTDLP (Patent and Trademark Depository 

Library Program), 129 
public relations, 76, 78-79 
publicity, 78 
purchasing businesses. See buying 

pyramid scheme, 35 



clients, keeping, 90 

health care coverage, 183 

high standards, setting, 265 

paper materials delivered to client, 267 

value, creating for clients, 166-167 
quantities, economies of scale and, 298 
quick ratio, 143-144 
QuickBooks: Basic software, 138-139 
quoting previous online messages, 95 


Rabbit, Nancy (graphic designer), 275 

radio show, 81 

Raising Capital For Dummies (Economy and 

Bartlett), 126 
rates, tax, 200 

"realness" of home-based businesses, 328 
reasons to start, 14-15 
recruiter, multi-level marketing, 35 
recruits, multi-level marketing, 37 
red flags. See scams and ripoffs 
red tape, cleaning up, 115-116 
references, hiring consultants, 247 

accountants, finding, 132 

asking for, 316-317 

business-to-business collaboration, 77 

partners, 122 

sources of, 74-76 

index 355 

refrigerator, resisting call of, 273 
registering logo, 115 
registers, check, 139 

business opportunities, 40 

government, 115-116 

banking, 244 

customers, 335 

independent contractor status, 203 

long-term, building, 90 

outside professionals, 113 

suing clients, 150-151 

value, creating for customers, 167 

Web etiquette, 95-96 

workaholism, 288 

working together, 291-294 
relatives. See family members 
reliability, 90 
relocation services, 47 
repair business, 71 
reputation, direct selling, 38 
resale permit, 210 
researching businesses, 61-64 
reseller's permit, 210 
resigning current job, steps before, 

respect, team, 292 
resume, freelance bidding site, 89 

counseling as business opportunity, 47 

easing into, 306-307 

planning, 11, 177 
retirement and savings plans 

benefits packages, 187-188 

startup funds from, 124 

taxes, reducing, 209 

transition to home-based business, 108 
return on investment (ROI), 144 
returns, filing tax, 193 

cash-flow projection, 118 

growing companies, 298 
rewarding self, 272 
Rhino Linings USA, Inc., 10 
ripoffs. See scams and ripoffs 
Roccaforte, Doug (Roccaforte Amps 

founder and owner), 93 
ROI (return on investment), 144 

room, separate, 268 

Roper Starch Worldwide survey, 61 

Roper-Starch survey of women, 25 

routines, 274-276 

royalty, franchise, 29, 33 

S corporation 

described, 115 

taxes, 197, 198, 200, 221 
salary, 158, 160 
sales taxes, 210-211 
salesperson, 325-326 
San Diego benefits plan, 184 
satisfaction, non-paying client, 148-149 
saving taxes, 209 

for slow periods, 18, 333-334 

startup financing, 123 
Savings Incentive Match Plan for 

Employees (SIMPLE), 188, 209 
SBA (Small Business Administration) 

loan programs, 7, 125, 153 

success, key indicators of, 111 
scams and ripoffs 

agencies handling, 257-258 

bartering, 250 

business opportunity red flags, 254-255 

detecting, 252-253 

direct-selling, network marketing, and 
multi-level marketing, 256-257 

franchise red flags, 255 

job-at-home red flags, 253-254 

online, 258 

prevalence of, 251 

problems with, 12 

pyramid schemes, 35 
schedules, tax, 191-192 

breaks, 272, 289 

cash-flow strategies, 147-148 

children, working around, 284, 293 

past-due notices, 149-150 

regular business hours, 285 

transition to home-based business, 

24-hour office, avoiding, 320-321 

work day, 268, 273, 274-276 


Home-Based Business For Dummies, 2nd Edition 

Schenck, Barbara Findlay (Small Business 

Marketing For Dummies), 119 
Schneider, James (tax attorney), 199 
search engines 
referrals, 102-103 
registering with, 97 
scams and ripoffs, finding, 258 
security consulting, 54 
security needs, rising physical and 

property, 54-55 
self-employed, growth in ranks of, 52-53 
self-image, strength of, 18 
seller's permit, 231 
selling business, 304 
seminars, 78-79 
SEP-IRA (Simplified Employee Pension), 

188, 209 
serious business attitude, 12 
service jobs, offshoring of, 50-51 
ServiceMaster, 10 
services. See also pricing 
business plan description, 127 
luxury, list of, 60 
Seven Steps to Successful 800, Radio and TV 
Direct Response Campaigns 
(Goodman), 238 
SIMPLE (Savings Incentive Match Plan for 

Employees), 188, 209 
Simplified Employee Pension (SEP-IRA), 

single entry bookkeeping, 117 
single-level marketing, 10, 34-35 
site consulting, security, 54 
situation analysis, marketing plan, 84-85 
Small Business Administration (SBA) 
loan programs, 125, 153 
success, key indicators of, 111 
Small Business Marketing For Dummies 

(Schenck), 119 
small-claims court, 151 
SmartPage, 92 
Smith, Bud (Marketing Online For 

Dummies), 101 
Smith, Steve (computer programmer), 204 

snacks, healthy, 322 
social interaction 

missing, 275, 282 

online networking sites, 94 

outside work, maintaining, 289 

television replacing, 271 
Social Security 

funding retirement, 187 

paying into, 192 
Society for Technical Communication, 56 
sock method of dog training, 287 

bookkeeping system, 117, 132, 138-139 

online auction business, 168 

tax, 210 

Web site creation, 100-101 
Solar Energy Installation Businesses, 53 
sole proprietorship 

cash, status of, 145 

described, 113-114 

legal framework, 217-218 

salary and, 160 

taxes and, 197, 198, 200 
song, copyright, 226 
spam, 278 
Speak and Grow Rich (Walters and 

Walters), 162 
special offers, 337 

special services for maturing population, 
business opportunities presented by, 
specialist pyramid, 42-43 
specializing, finding niche, 42, 70, 296, 313 
speeches, 78 

splitting difference, pricing, 169 
sponsoring sellers. See multi-level 

sponsorships, marketing through, 74 

health insurance provided by, 179 

help from, self-employment 
transition, 123 

support, evaluating, 18 
staff. See employees, hiring 

Index 357 

starting workday, 275 
startup funding 

direct sales, 37 

examples from successful companies, 23 

finding, 11 

inexpensiveness, 328-329 

partners, 122 

sources, 123-126 
startup pricing, 168-169 
state government 

business registration required, 254 

consumer protection agencies, 257 

government job scams, 253 

rules and regulations, 115-116 

sales tax, 210-211 
state occupational licenses, 231 
statements, bank, 139 
stationery, 74 
stats, checking, 104 

Steinberg, Bruce (National Association of 
Temporary and Staffing Services 
representative), 239 
stock, company, 306 

stopping work for late-paying clients, 150 
stress symptoms 

eating, 273 

television, 271 

diversifying client list, 301 

financial problems, 337 

cash flow, managing, 315 

customer base, building solid, 316 

day job, keeping, 315 

defining, 296 

drive, evaluating, 17 

expertise, developing, 313 

hobby loss rule and, 195 

indicators of, 111 

keys to, 296-297 

love, do what you, 312 

overnight, not expecting, 323 

pricing, 314 

promotion, 313 

referrals, asking for, 316-317 

treat business like a business, 312-313 

unnecessary expenses, avoiding, 314-315 
superiors, getting advice from, 20 
supervising accountants, 244 

loans from, 125 

trade accounts, 236-237 

franchising agreement, 31 

office, trade accounts, 236 

direct selling, 37 

franchising agreement, 32 

technical, 111 
support services, 12, 237-240 
surprises, avoiding 

with your clients, 90, 316 

from your consultants, 247 

earnings of home-based businesses, 327 

success of home-based businesses, 111 

target market, 68-69 
systems design, security, 54 

• r» 

taking business from old job, 121 
talent, as root of new business, 27 
Tarcher, Jeremy P. (The Practical Dreamer's 
Handbook: Finding the Time, Money, & 
Energy to Live the Life You Want to 
Live), 307 
amount, 199-201 

corporate status, 114-115, 199, 220-221 
deductions, other than home-office, 161, 

forms and schedules, 191-192, 196-198 
health insurance, deducting, 185 
hobby loss rule, 193-196 
home-office deduction, 205-206 
independent contractor status, 201-204 
legal issues, 232 
payment schedule, 198-199 
sales, 210-211 

jf}0 Home-Based Business For Dummies, 2nd Edition 

taxes (continued) 

saving money on, 209 

software to handle, 210 

transition to home-based business, 109 

who has to pay, 11, 193-198 

withholding, reducing, 125 
Taxes For Dummies (Tyson), 192 
Teaming Up: The Small Business Guide to 
Collaborating with Others (Edwards and 
Edwards), 292 
teaming up with family member 

actions, 291-292 

long-term relationship, building healthy, 

positive experience, judging, 290-291 

successful examples of, 289-290 
technical support, 111 
technical writing, 56 

Telemarketing or Answering Services, 238 
telephone calls 

business appearance, 267 

client payment problems, 149 

problem verifying business 
opportunities, 254 

distracting, 271, 320 

promoting business, 81 
templates, free Web site, 101 
temporary agencies, 239 
Terminix Termite and Pest Control, 10 
territory, franchise, 31 
terrorism, threat of, 54-55 
Tessier, Gilles (bartering example), 249-250 
test marketing, 69 
testimonials, 255 
testing, tutoring services for, 55 
thank-you note, 76, 317 
theft coverage, 117 
third-party credit card processor, 136 
threads, online messages, 96 
Thurow, Lester (MIT economist), 55 
Tiffany, Paul (Business Plans For 

Dummies'), 128 
Time Management For Dummies 

(Mayer), 279 
time, managing 

business attitude, 278-279 

deciding how much to spend, 15 

direct selling, 37 

marketing, 72-73 

meeting deadlines, 90 

turning away business, 13 

24-hour office, avoiding, 320-321 
time off, benefits packages, 188-189 
top ten opportunities, 22 
topic, online, 95 
tour packaging, 47-48 
towns, regulation by See local government 
tracking money, 1 1 

trade accounts, establishing, 236-237 

franchises, 29, 31 

legal issues, 225-226 
traffic, Web, 96-98 

franchising agreement, 32 

startup, 14 
training business, 162 
transaction fee, credit card, 135 
transition to self-employment 

accounting system, choosing, 117-119 

assistance, finding, 119-120 

business plan, 111-112, 126-128 

changing direction or moving on, 128-130 

described, 16-20 

insurance, acquiring, 116-117 

legal structure, choosing best, 113-115 

marketing plan, developing, 119 

name, choosing, 115 

obstacles, 107 

outside professional, consulting, 112-113 

part-time start, 108-109, 120 

plan, evaluating, 18 

red tape, cleaning up, 115-116 

resigning current job, steps before, 

spouse, help from, 123 

startup funding, 121 
translator, freelance, 177 
TransUnion credit reporting agency, 154 
travel, senior tour packaging, 47-48 
truce, instituting with friends and 

family, 12 

insurance, 117 

tax deduction, 209 
Tupperware, 34 
tutoring, 55 

Index 359 


distracting, 271, 320 

promoting business, 81 
24-hour office, avoiding, 320-321 
Tyson, Eric (Taxes For Dummies), 192 


UFOC (uniform franchise offering circular), 

The Ultimate Guide to Dog Training: How to 

Bring Out the Best in Your Pet 

(Margolis), 287 
unemployment insurance, 186 
unique identity, 42 
uniqueness cache, 59, 86 
United States Personal Chef Association, 46 
United States Tour Operators Association 

(USTOA), 48 
universal connectivity, 49-50 
unserved markets, 70 
unwanted work, pricing for, 171 
upline, multi-level marketing, 35 
URL (Uniform Resource Locator), 102-103 
U.S. See also FTC; SBA 
government job scams, 253 
luxury goods, sales of, 59 
maturing population in, 45 
rules and regulations, 115-116 
tutoring assistance in, 55 
US Patent and Trademark Office, 129, 

225, 227 
US Postal Service warnings, 258 
USTOA (United States Tour Operators 

Association), 48 
utilities, living off the grid, 53 


vacations, 189, 289 
value, creating, 166-167, 337 
valuing business, 306 
vandalism insurance, 116 
variance, zoning, 230 
VAs (virtual assistants), 53 

insurance, 117 

tax deduction, 209 


described, 39 

trade accounts, 236-237 
vest pocket or micro farming, 58 
virtual assistants (VAs), 53 
virtual retirement communities, 48 
virtual storefront, 50 
vision coverage, 185 
voice mail, 289 
volume discounts, 174 

during down time, 337 

word of mouth marketing, 73 


The Wall Street Journal, 165 

Walters, Dottie and Lilly (Speak and Grow 

Rich), 162 
warehouse superstores, 236 

auctions, pricing from, 168 

bidding for work, 87-90 

business opportunities, finding, 10 

competition, researching, 164-165 

customers, 98 

e-learning, 56 

etiquette for building good relationships, 

fraudulent business opportunities, 258 

merchant or auction/trader, 50 

networking, 20 

newspapers and journals, reading 
online, 165 

online forums, 93-94 

scams and ripoffs, 251 

social networking sites, 94 

startup funding, finding, 126 
Web site, business 

as addendum from online bidding for 
work, 89 

advertising, 103 

building, 100-101 

contact information, capturing, 103 

design, 103, 267 

e-commerce, 81-83, 101 

help starting business, 119 

hiring someone to create and maintain, 


Home-Based Business For Dummies, 2nd Edition 

Web site, business (continued) • 7 • 

hosting service, selecting, 100 " 

maintaining, 101 Zander, Ed (Motorola CEO), 50 

marketing, 81 Zell, Kurt (production company owner), 77 

promoting, 102 zoning laws, 229-230, 231 

pros and cons of creating, 82 

stats, checking, 104 

third-party credit card processor, 136 

traffic, building, 96-98 

URL, 102-103 
weight gain, 273 
what people will pay for (WPWPF) 

principle, 68-69 
wholesaler, 40 

baby, working at home with, 292 

direct selling, 37 

reasons cited for starting businesses, 25 
word of mouth marketing, 72, 73-74 
work ethic 

business opportunities, 40 

judging, 17 

cycle, breaking, 289 

warning signs, 288 
workers' compensation, 117, 186 
working time, separating, 323 
WPWPF (what people will pay for) 

principle, 68-69 
written agreement 

franchising, 31-32 

partnership, 303 

team, 291 
written communications marketing, 72 

• X* 

XpressChexOnline, 137 

Yahoo! Small Business Merchant 

Solutions, 101 
Yellow Pages, 80, 90-91 
The Yoga Site, 57 


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